MFN Clause

Refers to a provision in a contract or license agreement that provides that one party shall grant the other terms at least a favorable as those granted to any other business partner. MFN clauses are highly problematic for a number of reasons:

First, they are often agreed to by startup companies and act as handcuffs for them in future dealings; and

Second, their actual interpretation and effect is often hard to determine since different agreements can be sui generis with for example a running royalty offset by say an upfront fee or other financial compensation.

For these reasons lawyers often advise against their inclusion in an agreement. Also known as a NLF or Not Less Favored Clause or sometimes as an MFP or Most Favored Party clause.

Related Terms