Most favored nation clause
A promise to give a customer prices or terms at least as good as those offered to any other comparable customer.
What it means
A most favored nation (MFN) clause, a term borrowed from trade treaties, requires one party to treat the other at least as well as its best customers. In commercial contracts it usually means that if the supplier offers a lower price or better terms to another customer, it must offer the same to the MFN holder, sometimes retroactively.
A small software company might give its first big customer an MFN on pricing. A year later, it wants to offer a steep discount to win a much larger account. The MFN may force it to cut the first customer’s price too, which can make the new deal unprofitable. Tracking compliance across every customer is also an administrative burden.
MFN clauses favor the buyer. Suppliers usually try to narrow them to truly comparable customers, by volume, term length, product mix, and region, and to exclude one-off promotions. In some markets MFN clauses can raise antitrust concerns, particularly when a dominant company uses them, so they are not risk-free even for the party that gets one.
What to watch for
- Check how “comparable customer” is defined, because a vague definition makes the clause hard to apply and easy to dispute.
- See whether better terms apply only going forward or also require refunds for past periods.
- Look for exclusions such as pilot programs, nonprofit pricing, or bundled deals.
- Confirm how compliance is checked, including any audit or annual certification rights.
Example clause
If during the Term Vendor offers any other customer purchasing similar volumes of the same Products a lower price than those in Exhibit A, Vendor will promptly offer that lower price to Customer for all purchases made after the date it was first offered to the other customer.
The customer automatically gets any better price the vendor gives a similar buyer, from that point on.