Most Favored Nation clauses (MFN), put simply, are contractual provisions that prevent sellers from offering better terms or prices to competitors than those agreed upon with the buyer. Lately, MFNs have been making the headlines as regulators closely scrutinize the use of MFN provisions, particularly when employed by tech giants such as Amazon and Apple, due to their potential antitrust implications.
In the realm of U.S. antitrust laws, agreements that restrict trade are evaluated through either the per se rule or the rule of reason. The per se rule categorizes certain agreements like price fixing as inherently illegal, while the rule of reason weighs the potential anticompetitive effects against any pro-competitive benefits and alternatives to determine legality.
It makes a lot of sense that businesses with larger market shares face amplified risks when employing MFN clauses. While MFN clauses have often been associated with tech companies due to regulatory focus on industry giants, the notion that they are solely relevant to this sector is inaccurate. In fact, the healthcare industry faces similar scrutiny, particularly concerning dominant health plans potentially facilitating group pricing. With over 20 states imposing restrictions on MFN clauses in healthcare agreements, companies operating in this space should adhere closely to regulatory guidelines and seek legal counsel when incorporating MFN provisions. As antitrust scrutiny intensifies, businesses should carefully evaluate existing and prospective MFN arrangements to ensure compliance with regulatory principles and minimize the risk of scrutiny.
While MFN clauses are generally acceptable for most businesses, caution is advised for larger companies facing heightened regulatory scrutiny. When considering MFN provisions, it's crucial to assess: (1) your market share, (2) the number of market participants bound by your MFN provision, and (3) the potential impact of your MFN provisions on pricing.
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