Legal Definitions - most-favored-nation clause

Most-Favored-Nation (MFN) Clause

A Most-Favored-Nation (MFN) clause is a contractual provision where one party promises to give the other party treatment that is no less favorable than the treatment it gives to any third party. Essentially, if the first party later offers better terms or benefits to someone else, those same improved terms or benefits must automatically be extended to the party holding the MFN clause.

This clause acts as a safeguard, ensuring that the party with the MFN clause will always receive the best available deal or treatment, even if they weren't directly involved in negotiating those better terms with a third party.

• Example 1: International Trade Agreement

  Imagine two countries, Nation A and Nation B, sign a trade agreement. This agreement includes an MFN clause stating that Nation A will apply the lowest tariff rates on goods from Nation B that it applies to goods from any other country. Later, Nation A negotiates a new trade deal with Nation C, agreeing to a significantly lower tariff on imported textiles.

  How it illustrates the term: Because of the MFN clause, the moment Nation A grants the lower textile tariff to Nation C, that same lower tariff rate automatically applies to textiles imported from Nation B, ensuring Nation B receives the "most favored" treatment.

• Example 2: Software Licensing Contract

  A software developer licenses its enterprise management software to a large corporation, Company X. Their licensing agreement includes an MFN clause regarding future pricing for additional user licenses. Six months later, the developer offers a new client, Company Y, a special promotional discount of 20% off all additional user licenses to secure a major deal.

  How it illustrates the term: Due to the MFN clause, Company X can now demand that the 20% discount on additional user licenses also be applied to their account, ensuring they benefit from the best pricing offered to any other client.

• Example 3: Commercial Real Estate Lease

  A small business, "The Cozy Cafe," signs a lease for a retail space in a new shopping mall. The lease contains an MFN clause stating that if the landlord leases a comparable space in the same mall to another tenant at a lower per-square-foot rental rate within the next year, The Cozy Cafe's rent will be adjusted down to match that lower rate.

  How it illustrates the term: If, a few months later, the landlord struggles to fill another similar vacant unit and offers a new tenant a significantly reduced rental rate to entice them, The Cozy Cafe's rent would automatically decrease to that new, lower rate, ensuring they receive the most favorable rental terms available for comparable spaces.