Setback for the European Commission’s power to review non-notifiable transactions

On 21 March 2024, Advocate General (AG) Nicholas Emiliou recommended setting aside the General Court (GC) judgment in Illumina/Grail, which had previously confirmed the European Commission’s interpretation of Article 22 as allowing referrals of transactions that are not notifiable at EU and Member State level.

After reviewing its literal, historical, contextual, and teleological aspects, the AG concluded that Article 22 should not be interpreted to allow the Commission to accept Member States’ referrals of transactions that do not trigger national filing thresholds. According to the AG, this would be an overly broad interpretation and a significant extension of the scope of the EU Merger Regulation (EUMR) and the Commission’s jurisdiction:

“in one fell swoop, […] the Commission gains the power to review almost any concentration, occurring anywhere in the world, regardless of undertakings’ turnover and presence in the European Union and the value of the transaction, and at any moment in time, including well after the completion of the merger”.

The AG’s Opinion is not binding on the European Court of Justice (ECJ). If the ECJ follows the AG’s recommendations, this would mean that the Commission had no jurisdiction to review Illumina/Grail and other non-notifiable transactions. The ECJ’s judgment is expected in the autumn.

Until then, a low risk remains that the Commission could continue to pursue referrals of non-notifiable transactions. The Commission may be hesitant to do so until the ECJ judgment provides more clarity. However, if the ECJ does not follow the AG’s Opinion and confirms the Commission’s position, the Commission may be reinvigorated to call-in non-notifiable transactions, including those it was hesitant to pursue in this interim period prior to the ECJ judgment. Businesses should therefore continue to carefully consider the Article 22 call-in risk in each transaction and what contractual protections should be included in transaction documents.

Background

In 2020, genomic sequencing company Illumina acquired Grail, a biotech start-up developing early cancer detection blood tests. At the time, Grail did not generate any revenue in the European Union (EU) and the transaction did not trigger filing obligations at EU level or in any EU Member State.

In February 2021, the Commission invited the Member States to refer this transaction to the Commission under Article 22 of the EUMR. A month later, the Commission published updated Article 22 guidance stating that Member States can refer any non-notifiable transaction to the Commission if they consider that it significantly affects competition in that Member State. Six Member States submitted a referral request, and the Commission accepted jurisdiction on 19 April 2021. Pending review, Illumina and Grail closed the transaction in August 2021. Ultimately, on 6 September 2022, the Commission prohibited the acquisition, and ordered Illumina to unwind it, as well as to enact transitional measures to ensure that Grail remains separate from Illumina and viable as a stand-alone business. The Commission fined the parties €432 million for closing the transaction before clearance.

Illumina and Grail challenged the Commission’s decision to take jurisdiction before the GC. While recognising that the Commission invited the Member States to request an Article 22 referral “an unreasonable period of time” after receiving the complaint, the GC dismissed the appeal and affirmed the Commission’s broad interpretation of Article 22 (see our post on the GC judgment and a previous update on the case).

A closer review of the Opinion: Commission’s interpretation of Article 22 is overly broad

In its recent opinion, the AG concluded that the GC erred in law in its interpretation of the literal, historical, contextual, and teleological aspects of Article 22. More specifically:

• While the AG found that some of the Commission’s arguments based on the wording of Article 22 “have some force”, he nevertheless flagged certain textual elements that do not support the Commission’s broad interpretation (e.g., the word “referral” in the title of Article 22 in most official languages has a connotation that suggests that it concerns cases that are first notified to national authorities and then referred).
• The AG argued that the GC has relied on inadequate documents to establish the context and intended purpose of Article 22. In many cases, the cited documents did not support (or even contradicted) the GC’s findings. The GC also failed to consider numerous other documents, including the legislature’s preparatory work for the EUMR, that support a narrower interpretation of Article 22.
• The AG argued that the GC overlooked the fact that Article 22’s original purpose was to allow Member States without a merger control regime to request a referral, and that Article 22 was “never intended to allow Member States to refer to the Commission mergers falling below the national thresholds”.
• The AG referred to the need for an efficient and predictable system capable of offering legal certainty: this cannot be achieved if the Commission potentially has jurisdiction to review “each and [e]very merger occurring in the world, provided it may raise some competitive concerns in some Member State”.
• The AG also flagged that a broad interpretation of Article 22 creates significant potential for conflicts with the principle of territoriality of EU law as it cannot be excluded that the EU could claim jurisdiction over mergers which have “no foreseeable, immediate and substantial effect in the territory of the relevant Member State”. The AG also questioned whether the “Commission’s view of its far-reaching jurisdiction […] is fully in line with the principle of international comity”.

If the ECJ sides with the AG, this will have a knock-on effect on other ongoing proceedings in this case related to interim measures, the substantive prohibition decision, and the imposed fine. Regardless of the outcome, Illumina announced steps to divest Grail in light of the regulatory difficulties (including in the US); it reconfirmed this decision after the AG’s Opinion was issued.

Key takeaways

A (temporary) brake on Article 22 EUMR referrals?

The Commission may be more reluctant to request Member States to refer to it additional non-notifiable transactions until the ECJ issues its judgment. However, this is not guaranteed. In addition, if the ECJ does not follow the AG’s Opinion, the Commission could also open proceedings into transactions that occur between now and the ECJ judgment.

Businesses should not disregard this potential risk in the coming months and should carefully consider the specific risk in each case and include appropriate provisions in the transaction documents.

Legislative reform or alternative approaches?

If the ECJ follows the AG’s Opinion and curtails the scope of Article 22, the Commission will likely explore how to fill the perceived “enforcement gap” and potentially seek to introduce alternative thresholds to allow it to capture additional transactions. This would require an amendment of the EUMR, which however foresees a simplified procedure enabling the Council on a proposal by the Commission to “revise the thresholds and criteria” defining the scope of the EUMR.

The AG Opinion reminds us that jurisdictional thresholds should ensure a “local nexus” which justifies the intervention of the authorities in question, should be easy to calculate to avoid uncertainties, and should be set at a level that minimises the number of transactions unlikely to raise competitive concerns that are caught by the system.

The Commission could also seek to fill the perceived “enforcement gap” by relying on those Member States which have broad powers to call in transactions below national thresholds. A recent example is Italy where the competition authority can call in transactions with limited local nexus (see our update on this development). Once a transaction becomes notifiable in a Member State following the exercise of these call-in powers, the national authority would have the choice between investigating the case or referring it to the Commission based on an interpretation of Article 22 that is not being challenged in the EU Court proceedings relating to Illumina/Grail. [1] Such “workaround” would presuppose close coordination between the national competition authority and the Commission.

Ex-post investigations of non-notifiable transactions are also possible

The Commission may review the effects of non-notifiable transactions also post-closing under the provisions governing anticompetitive agreements and abuse of dominance (Articles 101 and 102 TFEU).

The ECJ has recently confirmed in Towercast that ex-post investigations of below-threshold transactions as potential abuses of dominance are possible. For example, the Belgian competition authority recently investigated Proximus’ acquisition of EDPnet on this basis. Beyond investigating a transaction itself, the authorities can also investigate the companies’ subsequent behaviour post-transaction. For example, on 26 March 2024, the Commission announced the opening of an abuse of dominance investigation into an animal health company that acquired (seven years ago) a competing late-stage pipeline medicine and subsequently prevented its market launch in the EEA.

What does this mean for the notification obligation under the Digital Markets Act?

Article 14 of the Digital Markets Act (DMA) requires designated gatekeepers to inform the Commission of transactions where the parties or the target provide core platform services or other services in the digital sector or enable the collection of data, regardless of whether EUMR or national EU Member States’ notification thresholds are met. Article 14 DMA provides that the Commission will inform Member States of any such transactions.  Member State authorities may use the information received pursuant to Art. 14 DMA to refer such transactions to the Commission under Article 22 EUMR. If the ECJ were to follow the AG’s Opinion, such referrals will no longer be possible for transactions that are not notifiable in any Member State, noting that some Member States, as explained above, have broad powers to call in transactions below the relevant quantitative thresholds.

The fate of transactions already referred under Article 22 EUMR?

Following the GC’s 2022 judgment, the Commission took jurisdiction over two additional cases based on Article 22 referrals from Member States whose merger review thresholds were not triggered (both in August 2023). [2] One of these transactions (Qualcomm/Autotalks) has since been abandoned. If the ECJ follows the AG’s Opinion, this would call into question the validity of the Commission’s review of the other transaction (EEX/Nasdaq), as well as of any review of a non-notifiable transaction that the Commission starts between now and then.

To find out more about our thoughts on the key trends and developments to be aware of in the coming year, read our Global antitrust in 2024: 10 key themes report.

[1] The Italian Antitrust Authority’s Notice of the Exercise of the Call-in Powers explicitly contemplates that the authority, after having called in a transaction, would still have the choice between referring the case to the Commission under Article 22 EUMR or prosecuting the case directly.

[2] In March 2024, the Commission accepted one more Article 22 referral request, but this one was made by a Member State without an existing merger control regime (Luxembourg); such application of Article 22 is not controversial, regardless of the outcome of the pending ECJ case in Illumina/Grail.