The Short(ish) Answer: An MFN requires Party A to offer Party B the best deal—or at least the same deal—that Party A offers to Party B's competitors.

MFN examples: (1) a requirement that a seller give a particular buyer the best price; (2) a requirement that a buyer not do business with a seller's competitors on more favorable terms.

An MFN usually relates to price, but it could address any term of doing business, e.g., warranties, rebates, promotions, or product availability/offerings.

MFNs mostly are considered "standard" and typically not treated as exclusionary. In short, this is because under traditional MFNs—where a buyer must be offered the best price—the MFN keeps the buyer's costs down, which ought to translate to lower prices for consumers downstream.

But MFNs can create antitrust concerns. Just remember the 3 "Ps."

What Are The Three P's?: From an antitrust perspective, we watch for MFNs that look Predatory, Protect Price, or Plot Collusion. The Ps are not mutually exclusive—an MFN could have features of all three.

What Does a Predatory MFN Look Like? An MFN might be predatory if its purpose is to foreclose competition, i.e., make it difficult or impossible for competitors or emerging competitors to do business.

For example, one court described an Amazon MFN "policy" that prevented its merchants from working with a would-be competitor of Amazon "to make lower-priced or innovative product offerings available to consumers." DeCoster v., Inc., 2023 U.S. Dist. LEXIS 12365, at *4 (W.D. Wash. Jan. 24, 2023). That policy—although arguably unilateral—was treated as a vertical restraint (an agreement between Amazon and its merchants) under Section 1 of the Sherman Act.

The restraint is of antitrust concern because, among other things, it could function as a barrier to entry to much smaller online platforms trying to compete with Amazon for merchants. How? A merchant needs Amazon even though Amazon may charge merchants high fees. If a merchant will be excluded from Amazon by seeking lower fees from a lesser-known platform in breach of Amazon's MFN policy, the lesser-known platform has no real chance to attract merchants (and therefore, to compete).

Here's another example inspired by an older case: milk delivery persons have an MFN with Employer A that precludes them from providing their services to Employer A's competitors on better terms. In violation of the MFN, the delivery persons contract with a competitor of Employer A at lower wages (but maybe for better working conditions). Employer A seeks to enforce the MFN. A court may resolve the dispute by asking whether the MFN is an antitrust violation because its purpose is to prevent Employer A's competitors from hiring labor (and therefore, competing). See Associated Milk Dealers, Inc. v. Milk Drivers Union, etc., 422 F.2d 546 (7th Cir. 1970).

What is a Price-Protective MFN? An MFN might protect price if its purpose is to maintain supracompetitive (monopoly) pricing, i.e., the MFN enables the party imposing it to charge too-high prices. A game developer made this type of allegation against Valve (the Steam Store digital game distributor) in a Section 1 and Section 2 case, i.e., that Valve punished game developers who did not comply with Valve's policy that games not be sold on other platforms on better terms. Plaintiff alleged that Valve's "stated purpose" for the MFN—"to ensure that Steam customers get the best deal possible" – was pretextual. Really, plaintiff alleged, Valve wanted to control prices of all games sold everywhere to maximize Valve's own sales.

The developer's complaint against Valve ultimately was dismissed for lack of an alleged antitrust injury: the game developer could not plausibly allege that it paid Valve supracompetitive fees. Even though Valve's fees were higher than the fees charged by Valve's competitors, because Valve had always charged developers the same 30% fee—both before and after its alleged market dominance – the 30% was deemed commensurate with the Steam Store's value.

The takeaway from the case should be that oppressive MFNs imposed by market leaders who charge higher prices than their competitors invite antitrust scrutiny.

What is an MFN that Plots Collusion? An MFN that plots collusion facilitates (or looks like it facilitates) horizontal collusion, i.e., Section 1 collusion amongst competitors or would-be competitors.

The best-known example is the Apple ebooks case. There, Apple included an MFN clause in its contracts with all 6 major book publishers requiring them to offer ebooks in Apple's online store for no more than what the same ebooks were offered elsewhere. The facts are somewhat complex, but the bottom line for these purposes, is that the MFN clauses emboldened the book publishers to act together in ultimately raising the prices of ebooks sold to consumers—both in Apple's online store and elsewhere. Apple knew in advance that this would be the result, and Apple policed the situation to be sure it came to fruition—enabling Apple to enter the ebooks market without having to compete on price against competitors like Amazon. There were also horizontal communications amongst the publishers themselves in furtherance of the scheme. United States v. Apple, Inc., 791 F.3d 290, 304-05 (2d Cir. 2015).

I Still Want to Have an MFN...What Can I Do? Some very general guidance is to document the procompetitive reasons behind the MFN and why it will not (or is unlikely to) result in higher consumer prices or reduced output or innovation. The reasons should not be conclusory but instead, should reflect actual in-depth competitive analysis.

This is even more important if you even appear to have market power. That does not necessarily mean you have sheer size (like an Apple or Amazon)—it means you have strength even in a small or niche market.

If that is you, you cannot take 100% comfort in the fact that your MFN is portrayed as a unilateral policy—rather than a contractual agreement. Courts look past labels to market realities informed by whether the other side is necessarily coerced into compliance through heavy policing or severe punishments that make it impossible to compete.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.