In taking on the esteemed mantle of anonymous in-house counsel columnist for ATL, it never occurred to me that I would get fan mail. I assumed no one was actually reading these columns other than my parents (who have supported me since my first writing masterpiece entitled, “I Hate My Baby Brother. Please Return Him.” I was six). But then I got fan mail, lots of it. A humbling amount, so thank you from the bottom of my shriveled grinch heart. But with the fan mail, came the other kind of mail that inevitably comes with putting yourself out there.
Admittedly, I’m still smarting from one particular reader who wanted to know with the (block your ears, Mom) *bleep* was my issue with MFN clauses. Apparently, I’ve picked on them in several columns so much so that someone felt the need to call it to my attention and defend them.
So let’s talk about my aversion to them.
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For those of you who are new to the trade, MFNs stand for “most favored nation.” Although they can serve many purposes, I typically see them in the sales setting where an MFN clause will guarantee the party getting it, the right to receive favorable pricing that is better or comparable to a similarly situated third party.
In other words, without having to lift a finger, Vendor A gets the same pricing as Vendor B even if Vendor B is killing itself to get in the door and give your company all sorts of (legal) reasons to work together. Meanwhile, Vendor A sits backs and yawns and collects the same discount as Vendor B. In addition to that just feeling all sorts of wrong, it’s also lazy. Essentially, Vendor A is a ginormous house cat with a double chin, while Vendor B is the scrappy outdoor cat with a notched ear that can’t seem to catch a break.
Cat analogies aside, it’s never a good idea to back a clause that sounds like it belongs on a Risk board rather than contained in a legal document. Moreover, even if I didn’t hate them on a purely moral and capitalist-leaning basis, I hate them because of the chaos they inevitably breed.
If the universe were fair and just, then maybe your company would just have a single sales person who quarterbacked all the deals, right? But of course, that’s never the case (because the universe is not fair and just) and instead, you’re inundated with sales people. None of whom ever talk to one another about anything because each sales person is his own unique celestial body around which all others orbit. Essentially, you run into that wise old Ben Franklin quote where three can keep a secret, if two of them are dead. MFNs work out great if a single person pulls the trigger as to when to allow them. Add multiple people into the mix and you’re done for. Might as well be Oprah hour. You get an MFN. And you get an MFN, and so forth.
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So imagine, you have a bunch of sales people running around offering up MFNs like it’s the wild wild west on Westworld (before things got convoluted and lame). Now you have multiple vendors with the same right and (wait for it), the sales department isn’t tracking who has what. Now you run into the problem of enforcement. What happens when one of your vendor cries foul that someone else is getting a better deal even though that initial vendor has an MFN? Finance gets involved. And trust me, Finance is like Legal’s annoying little sister. You do not want Finance up in your business performing the office equivalent of CSI on the books.
Can MFNs work? Sure. In a limited, controlled setting, I’m sure they work fine, especially when your business partners are communicating with one another or bothering to track MFN status. But in the absence of that?
First, I recommend trying to talk your business partner out of it. Explain the pitfalls and short-sighted wisdom of MFNs. Beg. Plead. Wheedle. Drag out your best “worst MFN ever” story and scare the crap out of them with it.
When that fails (and it will fail), try watering the MFN down to the extent you can. I will push for language that the MFN doesn’t include any rebates, promotions, or special sale pricing so it’s more difficult for one vendor to argue it’s not getting the MFN it was promised (when in doubt, blame it on a rebate). When that fails to impress a business partner, I’ll attempt to tie the clause to a performance threshold (that’s right, I’ve just made the MFN an anti-MFN where the vendor has to actually hit certain milestones to maintain their special snowflake status).
Whatever you do, be mindful of them because like bangs and that tattoo you got while studying abroad, I’m sure they seemed like a really great idea at the time. Only now you’re stuck dealing with them long after your business partner has moved on to the next deal.
Kay Thrace (not her real name) is a harried in-house counsel at a well-known company that everyone loves to hate. When not scuffing dirt on the sacrosanct line between business and the law, Kay enjoys pub trivia domination and eradicating incorrect usage of the Oxford comma. You can contact her by email at [email protected] or follow her on Twitter @KayThrace.