Landmark reversal in Illumina/Grail: the European Commission’s power to review non-notifiable transactions curtailed

The European Court of Justice (ECJ) has definitively rejected the European Commission’s (Commission) novel and broad interpretation of Article 22 of the EU Merger Regulation (EUMR), which purported to allow the Commission to review transactions that are not notifiable at either EU or Member State level. In its much-anticipated ruling in Illumina/Grail, the ECJ overturned the General Court’s (GC) judgment and concluded that the Commission and GC’s broad interpretation of Article 22 was “liable to upset the balance between the various objectives pursued” by the EUMR and “undermine the effectiveness, predictability and legal certainty that must be guaranteed to the parties to a concentration”.

The judgment means that deals falling below EU and Member State jurisdictional thresholds cannot be called in and referred by EU Member States to the Commission. However, like other global regulators, including the UK Competition and Markets Authority (which will shortly introduce new merger control thresholds (see our post) and the US Department of Justice Antitrust Division and Federal Trade Commission, which retain jurisdiction to review non-reportable transactions, the Commission will continue to have appetite to review deals despite falling below the filing thresholds.

The Commission has already signalled that it will explore alternative measures to fill the perceived enforcement gap. Commission Executive Vice-President Margrethe Vestager has said the Commission “will consider the next steps to ensure that [it] is able to review those few cases where a deal would have an impact in Europe but does not otherwise meet the EU notification thresholds”. This will likely be achieved through close cooperation with Member States, particularly those that have broad call-in powers to review below-threshold transactions. A number of EU Member States have recently introduced broad call-in powers and more Member States are expected to do so. This means that compared to the situation at the time of the Illumina/Grail decision, there are already more opportunities for Member States to refer below-threshold transactions to the Commission, without running afoul of the present judgment. We may also see an increase in post-closing investigations under antitrust rules, but a senior Commission representative has recently called this approach “messier” and more disruptive.

The ECJ’s landmark judgment thus does not remove Article 22 referral risks. Dealmakers should continue to carefully consider call-in and referral risks in EU Member States and include necessary contractual protections in transaction documents to cater for these risks.

A long saga ends

In 2020, genomic sequencing company Illumina acquired Grail, a biotech start-up developing early cancer detection blood tests. Grail did not generate any revenue in the European Union (EU) at the time 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 the transaction to the Commission under Article 22 of the EUMR, which France did (and other five Member States joined). The Commission accepted jurisdiction in 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. It fined the parties €432 million for closing the transaction before the Commission reached a decision.

Illumina and Grail unsuccessfully challenged the Commission’s decision before the GC (see our post and an earlier update on the case). Illumina and Grail each appealed the GC’s judgment. On 21 March 2024, Advocate General (AG) Nicholas Emiliou recommended setting aside the GC judgment, considering that the literal, historical, contextual, and teleological interpretation do not support the Commission’s expansive reading of Article 22 (see our post).

The Illumina/Grail saga ended on 3 September 2024 with the ECJ overturning the GC’s judgment. The ECJ found that the Commission and the GC erred in law in their interpretation of Article 22. The ECJ’s judgment will have a knock-on effect on Illumina’s other pending cases; since Illumina recently unwound the transaction, the impact of ECJ’s judgment on the specific transaction will be limited beyond the expected annulment of the gun-jumping fine and Illumina’s possible claims for damages.

ECJ: Commission’s interpretation of Article 22 was at odds with legal certainty

In reaching its conclusion, the ECJ has largely followed AG Emiliou’s opinion. It undertook a detailed analysis of the wording, history and context of Article 22, and ultimately overruled the GC’s judgment largely based on a differing view of the primary objectives of the EUMR and attaching decisive importance to legal certainty for businesses. Crucially, the ECJ held that:

• Transactions examined under Article 22 are not considered to have an EU dimension and, in these cases, the Commission only replaces the referring Member State(s) (other Member States can still review the transaction). The ECJ thus concluded that the Commission’s competence under Article 22 presupposes that the national authorities themselves are not precluded from reviewing the transaction under the national rules.
• Article 22 is not a ‘corrective mechanism’ intended to remedy deficiencies in the merger control system. Rather, Article 22 is only a mechanism of allocating competences between the Commission and national authorities, which pursues two primary objectives: (1) to allow for review of transactions that could negatively impact competition in a Member State that does not have national merger control rules; and (2) to enable the Commission to review a transaction that is notifiable in multiple Member States and avoid multiple notifications at national level (“one-stop shop” principle).
• Notification thresholds are of “cardinal importance” as they allow companies to “easily determine” whether their proposed transaction must be reviewed and, if so, by which authority, and when a decision might be expected. This is “an important guarantee of foreseeability and legal certainty”.
• The Commission’s interpretation of Article 22 is “at odds with the principle of institutional balance”. If the current notification thresholds are considered insufficient to capture problematic transactions, “it is for the EU legislature alone to review those thresholds or to provide for a safeguard mechanism enabling the Commission to scrutinise such a transaction”. The ECJ highlighted that the EUMR provides for a simplified procedure to review notification thresholds, allowing for a rapid adjustment of the scope of the regulation if necessary. The ECJ noted, however, that a system based on turnover thresholds is “by definition, incapable of covering all potentially problematic concentrations”.

Key takeaways:

• The Commission to work with Member States to ensure below-thresholds transactions continue getting reviewed

In an immediate reaction to the judgment (link), the Commission suggested that it will rely on Member States with broad powers to call in below-threshold transactions to ensure that transactions that could have an impact in Europe continue to be reviewed. Such Member States include Italy (see our update), Ireland, Denmark, Lithuania, and Cyprus. Following the judgment, other Member States might be incentivized to introduce broader call-in powers (e.g., Luxembourg, Finland, and the Netherlands), some potentially with limited local nexus. These Member States could then refer the transaction to the Commission under Article 22; this would comply with the ECJ judgment because the referring Member State would have jurisdiction to review the transaction. However, broad call-in powers for transactions without any local nexus will raise questions under international law, which could give rise to further jurisdictional challenges before national and EU courts.

Broader call-in powers mean that the Commission will continue to be able to cast a wide net. EU competition authorities are expected to closely coordinate with the Commission on deals that raise an interest, including to determine which authority would be best placed to exercise call-in rights on each specific case. Even so, there is no indication for now that the Commission and the national authorities are preparing to use this alternative mechanism significantly more often than the Commission has used the below-thresholds Article 22 referrals over the last couple of years (i.e., no more than a few times per year). 

• A legislative reform to expand the scope of EUMR is not expected at this stage

The Commission could seek to amend the EUMR to introduce alternative thresholds to capture additional transactions. That being said, opening up the EUMR for amendments could expose it to other legislative discussions and changes brought forward by the Member States. This may make the Commission reluctant to go down that road. Nonetheless, the Commission might feel pressure from the European Parliament with one Member of the European Parliament already signalling an “urgent need to change our rules”.

• Post-closing antitrust review of non-notifiable transactions is possible, but “messier”

The ECJ confirmed in Towercast that ex-post investigations by national authorities and courts of below-threshold transactions as potential abuses of dominance are not precluded (see our post). Some national authorities have already made use of this power (e.g., the Belgian competition authority has recently investigated – and effectively prevented – Proximus’ acquisition of EDPnet on this basis). Regulators can also investigate post-closing conduct of companies that became (potentially) dominant after a transaction. For example, the Commission recently announced its abuse of dominance investigation into an animal health company that acquired a competing late-stage pipeline medicine seven years ago and subsequently allegedly prevented its market launch.

While the Commission signalled earlier this year that such investigations could be a solution if the ECJ overturned its broad interpretation of Article 22, Director-General of the Commission’s Directorate General for Competition, Olivier Guersent called such approach “messier”, more disruptive, and giving companies less legal certainty. Yet, the French competition authority has already reacted to the Illumina/Grail judgment by stating that it would pursue mergers that allegedly harm competition with “all tools available (including antitrust laws)”, highlighting digital innovation (in particular generative AI), healthcare, and biotech as examples of areas where an innovative jurisdictional approach may be required.

While post-closing investigations of transactions as an abuse of dominance will likely remain rare, businesses involved in non-notifiable transactions resulting in (potentially) dominant market positions should keep this possibility in mind.

• Impact on the notification obligation under the Digital Markets Act

Article 14 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. The Commission then informs the Member State authorities which may use this information to refer transactions to the Commission under Article 22 EUMR (jurisdiction for the Commission to review deals has to be established under merger control rules).

Following the ECJ’s judgment, gatekeepers will still have a notification obligation under Article 14 DMA, but after Illumina/Grail, the Commission will only be able to assert jurisdiction over deals if a Member State which itself has jurisdiction to review the transaction refers it under Article 22. This means that Article 14 DMA will not operate fully as originally intended as transactions by gatekeepers that are not subject to notifications or call-ins anywhere in the EU will escape the Commission’s jurisdiction going forward.

What does all this mean for dealmaking?

The Commission’s overly broad assumption of jurisdictions over non-notifiable deals has now been struck down. The ECJ judgment means that the Commission should now only be able to obtain a referral for transactions that trigger at least one notification at Member State level. However, as a result of increased call-in powers at a national level, which are, according to Commissioner Vestager, “already more extensive than they were at the time of the Illumina/GRAIL referral”, Article 22 will likely continue to play a significant role. 

The Commission can be expected to continue to be interested, in particular, in finding ways to review transactions involving innovative targets whose turnover does not reflect their competitive position or potential. The risk remains more pronounced in deals in the digital economy, pharmaceuticals, and biotech space. In this sense, the substance of the Commission’s guidance on its approach to Article 22 referrals remains relevant as an indication of the Commission’s priorities.

In conclusion, the ECJ’s landmark judgment does not remove Article 22 referral risks. To manage this risk in deal negotiations, businesses should continue to consider including conditions precedent and other SPA provisions catering for this risk, now with an additional focus on Member States with broad call-in powers.