pattern of behavior in the cerivastatin litigation: the most-favored- nation clause analyses and the secret settlement analyses.
Bayer’s announcement of the existence of a fixed schedule and the
lack of confidentiality agreements acted as a functional analog to
for the third party than for the first.
The term comes from trade country A has a most favored
nation agreement with country B, country A favorable trade agreement with country C. is an agreement not to settle a claim with
agrees not to provide a more In the settlement context, it a third party on better terms
than that reached with the contracting party for that party.
party does reach a more favorable agreement retroactively provide the same terms to the to the MFN provision.
with a third party, party with which it
it must agreed
Using a most-favored nation clause in settlements can benefit the
defendant in addition to the party to which the defendant offers the
Spier (2003) modeled the effect of MFN clauses on the
behavior of litigants.
that a defendant can use a MFN to
being sued commit to a
By including a MFN clause in
13 The increased costs of actual trial as compared with pre-trial litigation may also prompt settlement just prior to trial. One way to understand this problem is by comparison to a 14
monopolist who wants to maximize monopolists will have incentives
Coase (1972) over time to
explained, sell to
buyers with lower
valuations for high valuation
the product on customers know
which she has a that the monopolist
eventually lower prices, they may simply wait and not pay the initially
high price until the monopolist lowers prices.
As a result, the
monopolist may not be able to charge as much as she would
able to problem
the high-valuation customers. by including an MFN clause in
The monopolist can
otherwise be solve this credibly
commits the monopolist to not lowering would then be forced to pay additional
prices because the monopolist sums to the early buyers if she