lllumina/Grail: Court upholds extension of EU merger review powers

On 13 July 2022 the General Court rejected Illumina’s challenge to the Commission decision to review its acquisition of Grail. The review followed a referral of the case by EU Member States to the Commission, even though the transaction did not meet the review thresholds of the EU Merger Regulation (EUMR) or any EU national merger regime.

The Court thereby endorsed the Commission’s new policy that encourages Member States to refer transactions to the Commission on the basis of Article 22 EUMR even where they do not meet the national merger control thresholds of the referring Member States. This shift in policy was intended to close a perceived enforcement gap for “killer acquisitions”, particularly in the digital and pharma sectors (see our previous blogs here and here), but it introduced uncertainties for merging parties across all sectors, which have not been resolved by the General Court.

Illumina has said it will appeal, but for now it is clear that this significantly extended reach of the EUMR continues to have to be factored into deal planning.

What is the case about?

In September 2020 Illumina, a US gene-sequencing business, agreed to purchase Grail, a US company that uses such sequencing to develop cancer screening tests. The transaction was not notifiable under the EUMR or any national merger regime in the EU, because the parties’ turnovers did not exceed the relevant thresholds. In fact, Grail did not generate any revenue anywhere in the world.

Despite this, the Commission, following a complaint about the deal, for the first time applied its new approach and invited Member States to refer the case to the Commission for review, which a number duly did. The Commission considered that referral was appropriate because Grail’s genomic cancer tests were expected to be game-changers in the market and Grail's competitive significance was therefore not reflected in its turnover.

Illumina contested the Commission’s jurisdiction and sought annulment of the Commission’s decision to review the deal. In particular it argued that a Member State cannot refer a transaction to the Commission if its own national merger control threshold is not met (a position shared by some Member States).

What did the Court say?

The General Court has confirmed the legality of the Commission’s new approach to Article 22 EUMR. It held that:

• The Commission can review transactions even if they are not notifiable under the referring Member States’ national regimes. The Court considered that this expansive interpretation is in line with the purpose of Article 22, which is to allow the Commission to review concentrations that are likely to significantly impede effective competition in the EU, despite not reaching the EUMR thresholds: “referral mechanisms are an instrument intended to remedy control deficiencies inherent in a system based principally on turnover thresholds which, because of its rigid nature, is not capable of covering all concentrations which merit examination at European level”;
• Illumina’s legitimate expectations had not been breached, despite the fact that the Commission had invited the Member States to refer the case before the new guidance was published and despite Commissioner Vestager having stated that the Commission would not change its policy until after publication of the guidance. The Commission had always had the competence to take referrals under Article 22 where a transaction did not meet national turnover thresholds, even if in practice it had not previously done so;
• The referral request was submitted in time. In cases where no notification is required (because national merger control thresholds are not reached) the deadline for making a request is 15 days from the moment the transaction is “made known” to the Member State concerned. The Court clarified that “made known” requires the relevant information to be actively transmitted to the Member State, enabling it to assess, in a preliminary manner, whether the conditions for a referral request are satisfied (so a press report, for example, is not sufficient); and
• The Commission is required to comply with a reasonable time limit in administrative procedures, and the 47 days it took between receiving a complaint about the deal and sending the information to Member States was unreasonable. But this did not affect Illumina’s ability to defend itself and so did not justify annulment.
  

What is the impact on deal planning?

The new policy has been part of deal planning since it was announced in September 2020 and merging parties will need to continue to consider the implications for timelines and execution certainty, particularly for deals involving an innovative player in the tech, digital or pharma sector. Key issues include:

• Uncertainty arising out of the vague jurisdictional criteria and the broad discretion the Commission has to take jurisdiction: it will often be hard to rule out risk of referral;
• Deal timing and business integration: we have some clarification on the 15-day limit for requesting a referral, but there remains significant scope for late and even post-closing referrals, meaning that parties will need to consider whether or not to close and integrate if there is a risk of the transaction later being referred (the Commission’s Guidance says it “would generally not consider a referral appropriate where more than six months has passed after the implementation of the concentration” but even this is qualified); and
• Parallel Commission and Member State review: in cases where national jurisdictional thresholds are met in some Member States who do not seek a referral, there is now increased potential for a transaction to be reviewed simultaneously by the Commission and those Member States.

We have considered these and other issues, and also suggested some practical steps to reduce uncertainty and mitigate risk, in our previous posts here and here and our detailed briefing here.

However, the situation remains fluid and may change again in the future, given the controversial nature of this newly extended jurisdiction and the fact that Illumina has said it will appeal to the European Court of Justice.

Please get in touch with us or your usual contact in our Antitrust, Competition and Trade team if you have additional questions or would like to discuss what your business can do to prepare for the regulation entering into force. To read more about antitrust developments globally, refer also to our Global antitrust in 2022: 10 key themes report.