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Most favored customer (MFC) clauses in technology licensing agreements typically obligate the licensor to grant the licensee equivalent or better terms than the licensor has granted to any of its past, present and future customers. For instance, if in the future the licensor lowers its price for a product for one customer, it must do the same for those to which it owes an MFC obligation. Technology licensors should avoid MFC clauses in technology licensing agreements. MFC clauses may be difficult to avoid, however, particularly when the licensee has sufficient negotiating leverage. Consequently, if the licensor must enter into an agreement with an MFC clause, the licensor should attempt to reduce the scope of its MFC obligations. To limit onerous obligations under an MFC clause, the licensor should consider granting most favored status on a point-by-point basis rather than on the totality of the agreement. By restricting the MFC clause to specific terms, such as price; or other specific terms and for the specific technology being licensed, the licensor’s obligations are narrowed. The licensor may also want to limit the applicability of the clause so that if a better price is offered to another, that price is offered to the licensee, but only for future purchases by the licensee, i.e., it is not applied to past purchases so as to require a refund or a credit with respect to those purchases. Licensors may also attempt to reduce the scope of MFC obligations to those customers that are similarly situated to the licensee, such as, regional, national, or multinational firms with similar purchasing volume levels. If applicable, the licensor may limit the effect further by specifically excluding from an MFC granted to a non-governmental customer transactions with governmental entities. Licensees often request audit rights in tandem with an MFC clause to ensure the licensor’s compliance with its MFC obligations. The licensor should ensure that the licensee’s right to exercise its audit rights should be limited to the particular scope of the MFC clause granted, to a specified frequency (once per year, e.g.) and should be at the licensee’s cost. The following is an example of a pro-licensor MFC clause: Licensor agrees to offer Licensee in the future additional copies of the Product. Licensor guarantees that, with respect to those copies being purchased at that time, such copies shall be provided on price terms no less favorable to Licensee as Licensor offered or provided to any other similarly situated customer who obtained the Product from Licensor for similar purposes and at similar volume levels, at the time of Licensee’s purchase or prior thereto. Note that MFC clauses may invoke antitrust concerns and antitrust counsel should be consulted when considering such a clause. Stanley Paylago is an associate in the New York office of Brown Raysman Millstein Felder & Steiner. This sample clause is intended to serve solely as an exemplar and may need to be modified to conform to the legal requirements of your jurisdiction. It in no way constitutes legal advice.

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