The Antitrust Agencies' Latest Favorite Target: MFN Clauses: Highlights From The Joint DOJ-FTC MFN Workshop

On September 10, 2012, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) hosted a public workshop exploring the uses of most-favored-nation clauses (MFNs) and their implications for antitrust enforcement policy. The workshop provided a forum for lawyers, economists, academics, and businesspeople to discuss the legal and economic analyses of MFNs, as well as an opportunity to help inform future treatment of MFNs by the antitrust agencies. Recent agency actions, speeches, and this workshop may signal a reinvigorated focus on MFN clauses by the DOJ and FTC. In fact, in a March 2012 speech, then-acting Assistant Attorney General for the DOJ's Antitrust Division, Sharis Pozen, stated that the DOJ has "combined [its] MFN expertise with the states' knowledge of local market conditions to open investigations of various MFN clauses in a number of markets."

MFN provisions, also referred to as "most favored customer" or "antidiscrimination" clauses, are most commonly included in contracts across a wide range of industries to guarantee a customer that it will receive prices that are at least as favorable as those provided to other customers of the same seller.

There are few, if any, cases fully litigated on the merits in which an MFN clause has been found to be anticompetitive. Until the mid-1990s, MFNs were generally viewed as procompetitive, or at least competitively neutral. Since that time, however, various private litigation and agency investigations have challenged the use of MFNs in different industries. Most recently, earlier this year the DOJ filed a lawsuit against Apple, Inc. and several large book publishers alleging a per se violation of Section 1 of the Sherman Act for conspiring to raise the retail price of e-books through various mechanisms, including MFN provisions.1 The proposed final judgment with three of the publishers requires the termination of the existing MFNs. In another matter, from 2010, the DOJ sued Blue Cross Blue Shield of Michigan to prevent enforcement of MFN provisions by the region's dominant insurer, alleging that the clauses excluded competition.2

Economic Theories and Empirical Evidence of the Effects of MFNs

The workshop began with an examination of the economic theories concerning the potential pro- and anticompetitive effects of MFN provisions. For potential competitive benefits from the use of MFNs, the panelists focused primarily on efficiencies related to minimizing opportunism and transaction costs. The opportunism problem arises in certain transactions where the risk of exploitation by one...