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9.11.16: Most Favored Nation Clauses
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Abstract
Technology moves fast in today's world and a licensee (who may have paid a giant up-front fee to enable the licensor to finish product development) will feel justifiably aggrieved if the product is subsequently licensed to the licensee's competitors on more favorable terms. Consequently, many agreements contain so called most favored nation clauses, provisions which ratchet down the existing license terms to whatever better terms are enjoyed by the newcomer. This clause is particularly hard to draft since the possibility of ambiguity is unusually largewhat is "more favorable," versus simply different. Each license will contain some distinct language (assuming any negotiation occurs at all) and there is the question of comparability. What if the first license entails periodic payments out of net profits and the second involves a lump-sum payment?[1] If the licensor settles a dispute with an alleged infringer and that settlement involves some sort of license, does...
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