What Is a Most Favored Nation (MFN) Clause in a Contract?

Why it matters

For the side giving it, every better deal offered to someone else can trigger a price cut or refund for this customer too. It can make future discounts expensive.

How common is it?

In the 510 public-company commercial contracts of the CUAD dataset (The Atticus Project, CC BY 4.0), 28 (5.5%) contain a most favored nation clause.

Among contract types with at least 20 contracts in the set, it shows up most in strategic alliance agreements (5 of 32), co-branding agreements (3 of 22) and distribution agreements (4 of 32).

These are larger-company deals, not a sample of every contract — a reference point, not a rule. Full method: /data/cuad.

What to watch for

• Comparison against all customers, not similar ones.
• Retroactive refunds when a better deal is found.
• A duty to report your other customers' terms.

A realistic example

A software startup gives its first large customer an MFN clause. A year later, a steep discount for a nonprofit triggers a matching price cut for the large customer.

What to ask for

1. Comparison limited to customers of similar size, volume and terms.
2. Price changes going forward only, with no refunds for the past.

Related terms: exclusivity clause · right of first refusal · audit rights clause

Related guide: 7 things to negotiate before you sign a contract

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Not legal advice. This is an educational definition of a common contract term. Details vary by jurisdiction — this page explains common U.S. usage. For high-stakes agreements, have a lawyer review the final version.