Most Favored Nation Clauses

Summary

This is a most favored nation (MFN) clause, which is a clause that is used in a sales contract that requires the supplier to sell to the purchaser at the lowest price offered to any other purchaser. This type of agreement presents significant antitrust risk. Although MFN agreements benefit competition because consumers receive lower prices, courts and the enforcement agencies sometimes challenge MFN agreements as arrangements that stabilize resale prices. The enforcement agencies most frequently challenge such clauses when they are imposed by a dominant purchaser or where the purchaser requires the supplier to sell to the buyer's competitors at a higher price (known as an "most favored nation plus" clause). Before including an MFN clause in an agreement between a supplier and a customer, distributor, dealer or retailer, you must carefully assess the antitrust risks presented. For a discussion of these risks, see the Most Favored Purchase Clauses section of the practice note Nonprice Restraints in Vertical Agreements.