Most favoured nation (“MFN”) clauses, sometimes known as ‘price parity’ or ‘best price’ clauses, are agreements whereby one party promises another to always offer its best rates or terms for a product or service. They are commonly found in a wide range of commercial agreements from long term industrial supply to distribution arrangements. However,  increasingly they have been adopted in the on-line world through agreements for online travel agency sites, price comparison sites and online marketplaces where the site operators wish to ensure that they can offer the lowest price on the market.

Whilst on the face of it these clauses seem favourable to consumers, regulators are beginning to take the opposite view. We look at the position of these clauses in the EU and the U.S. below.

European Union

The current EU competition law position is that MFN clauses will infringe Article 101(i) if in the individual circumstances of the case they result in an appreciable adversely effect on competition in the European Union. This is likely to happen when the parties to the agreement have substantial market power.

It is recognised by EU courts and regulators that such clauses are widely used in a number of industries including most topically with online travel agents. However the regulatory tide in the EU appears to be turning against the use of these clauses. In a number of recent EU cases in the UK and Germany, MFNs have been condemned when used by companies with significant market power.

In January 2014, the UK competition regulator, the Office of Fair Trading (“OFT”) accepted binding commitments from leading on-line booking platforms, Expedia and to alter the way they operated their MFN clauses with a major hotel chain International Hotel Group. The OFT considered MFN clauses favoured existing powerful market participants by dampening price competition. This in turn acted as a barrier to entry deterring new competitors.

In a similar case the month before the German Federal Cartel Office prohibited leading German hotel portal company HRS from applying a MFN clause which required HRS’s hotel partners to offer their lowest rates to HRS’s booking website. The Cartel Office believed MFN clauses created barriers to entry and prevented price competition. Given the fact that HRS had a market share of more than 30%, the effects of the MFN clause in question were particularly pronounced.

Under EU competition law, a clause can be a breach if it “has as its object or effect” a restriction of competition. To date, cases in the EU have been advanced on the basis that the effect of MFN clauses has been to reduce competition. However, if EU regulators’ views on MFNs harden in the future, such clauses may find themselves grouped together with other serious infringements of the rules such as resale price maintenance. If this were to happen MFNs would then be treated as restrictions by object. This means that regardless of the effect or consequences of the clause, if the clause is included in the agreement it will be an infringement exposing the parties to potential heavy fines and other sanctions such as the unenforceability of the Agreement or clause in question.

United States

U.S. antitrust law generally treats MFNs as vertical restraints and as a result, such provisions are judged under the rule of reason – balancing the pro-competitive benefits of the arrangement against any anti-competitive effects. Generally speaking, only an MFN provisions that is, on balance, more harmful to competition than beneficial to it will run afoul of the law.

Analysis of the potential competitive effects resulting from an MFN provision will be very fact specific and largely driven by the particulars of the parties involved, the industry in which the provision is employed, and the nuances of the market(s) in question. While this makes it difficult to draw any hard lines separating the permissible MFN from the impermissible MFN, there are some situations in which the likelihood that an MFN will be considered anticompetitive will be reduced. For example:

  • MFNs employed in un-concentrated markets will be less concerning than those employed in highly concentrated markets.
  • MFNs involving parties with low market shares in their respective markets will be less concerning than an MFN arrangement where either the supplier(s) or buyer(s) (or both) have a more significant share of the market(s) in which they operate.
  • MFNs are more likely to be pro-competitive in situations where they incentivize a supplier or customer to be an early adopter of technologies or innovations that it might otherwise wait on.

On the other hand, MFN provisions employed in the context of more concentrated markets, involving parties with more substantial market share, and/or involving certain mechanisms by which the parties may strictly monitor or enforce the MFN provision (among other things), can raise greater concern. For example, in 2010 the U.S. Department of Justice Antitrust Division challenged MFN provisions used by a health care insurance company with 60% or more share of the commercial insurance market. The alleged that the MFN provisions allowed the insurer to maintain its market power, reducing the ability of its competitors to effectively compete and likely resulting in higher prices. The Division’s case was ultimately dismissed when Michigan passed a law to prohibit health care insurers from using MFN provisions in their agreements.

MFN provisions may also be scrutinized where they form part of horizontal arrangements. Probably the most high profile recent case in this regard is the e-books distribution case in the U.S., which concerned a situation where Apple and certain book publishers constituting a significant portion of the e-books market, moved to an agency distribution model. The agency arrangement between Apple and the publishers included an MFN clause, which guaranteed that Apple’s e-book price would be no higher than the price charged by competing e-book stores and also effectively penalized the publishers for not switching competing e-book providers to agency models as well.

The court’s decision (which Apple is now appealing) finds that Apple participated in an illegal price fixing conspiracy in violation of Section 1 of the Sherman Act, but also explicitly notes that it did not find any one of the provisions involved in the agreements between Apple and the publishers (e.g., the MFN) to be “inherently illegal.” It further clarifies that “entirely lawful contracts may include an MFN….” It did find, however, that Apple used these provisions as a tool to facilitate the conspiracy. Thus, while it seems MFN provisions may be lawfully utilized in many contexts, this case demonstrates one example of a context in which such provisions may present increased risk – where the parties involved in the arrangement comprise a significant portion of the relevant market and/or where the provision may be considered as part of a horizontal arrangement, used to further an unreasonable restraint.


It is clear from the above positions that there has been some judicial and regulatory movement against MFN clauses, especially when the party seeking the benefit of the clause has a high market share. Whilst recognizing that these clauses are commonly used today throughout several industries, companies wishing to include (or continue to operate) MFN clauses in their agreements should take detailed specialist antitrust/EU competition law advice before they do so to assess their individual level of risk.