The EU Court of Justice’s Judgment in Illumina/Grail – Has the Killer of “Killer Acquisitions” Been Disarmed?

On September 3, 2024, the EU Court of Justice overturned the first-instance judgment of the EU General Court, which had held that the European Commission could review transactions that fall below EU and Member States' merger control thresholds through referrals by national competition authorities under Article 22 of the EU Merger Regulation (Case C-611/22 P, Illumina v Commission).

Background – Illumina’s quest for Grail

On September 9, 2020, the biotech company Illumina announced its plan to acquire Grail, a developer of cancer screening tests, for $8 billion. As Grail had no revenues at the time, the transaction was not subject to EU merger control rules. However, France, where the transaction was also not notifiable, filed a referral request with the Commission asking it to review the transaction. On April 19, 2002, the Commission accepted the referral request. It then opened an in-depth investigation and ultimately prohibited the transaction on September 6, 2022. It also fined Illumina €423 million for violating the standstill obligation, as Illumina and Grail had closed the transaction before the Commission completed its review, and it ordered the parties to unwind the transaction. Illumina and Grail argued before the General Court (GC) that the Commission lacked jurisdiction over the transaction. However, the GC disagreed and ruled in favor of the Commission. Illumina and Grail then appealed, and the EU Court of Justice (ECJ) has now overturned the GC’s judgment.

 The ECJ’s reasoning

The ECJ found that the GC had erred in law in its interpretation of Article 22 of the EU Merger Regulation (EUMR), which provides for a referral mechanism on which the Commission had relied to assert jurisdiction over transactions that did not meet the relevant thresholds either at EU or at Member State level. The ECJ made the following observations:

• Historically, Article 22 EUMR was intended to address the situation where a Member State did not have a merger control regime in place, which was the case for the Netherlands at the time, hence the nickname "Dutch Clause". Such a Member State could request the Commission to examine a concentration that might have a negative impact on competition within that Member State.
• In addition, Article 22 EUMR is intended to strengthen the "one-stop-shop" principle, allowing Member States to refer transactions over which they have jurisdiction to the Commission thereby avoiding multiple national filings for the parties, even if such a transaction has no EU dimension.
• In contrast, Article 22 EUMR was not intended to act as a "corrective mechanism" to address deficiencies in the EU merger control regime or to provide the Commission with additional flexibility in applying the regime.
• An extension of the scope of the EUMR and of the Commission's powers to review concentrations is contrary to the principles of institutional balance, predictability, effectiveness and legal certainty. The EUMR provides for a specific procedure to adapt the turnover thresholds through legislation, and it is for the EU legislature to revise the scope of the EUMR. The Court noted that a system of thresholds to determine when a transaction is notifiable is of "cardinal importance" for legal certainty. Parties must be able to determine easily whether their proposed transaction is subject to a preliminary examination and, if so, by which authority, and when a decision by that authority can be expected.

The ECJ therefore concluded that Article 22 of the EUMR could not serve as a legal basis for the Commission to review transactions that do not meet any merger control thresholds.

Implications

The Illumina/Grail judgment is a serious blow to the Commission's approach to merger control enforcement with respect to so-called killer acquisitions. It means that the main tool used by the Commission in recent years to review transactions that fall below the merger thresholds has been curtailed. However, "below thresholds" transactions can still be reviewed under certain circumstances:

• A number of Member States (e.g., Germany and Austria) have alternative thresholds relating to the value of the transaction that are specifically intended to cover transactions involving a target with little or no turnover. It seems likely that these transactions can still be referred to the Commission for review.
• A few Member States (currently Italy, Ireland, Denmark, Lithuania and Cyprus) have call-in powers under their national merger control laws, allowing them to require parties to notify a transaction even if it does not meet the national thresholds. In a reaction to the ECJ ruling, the Commission stated that the possibilities for referrals are thus "already more extensive than at the time of the Illumina/GRAIL referral". However, the ECJ's arguments regarding the importance of legal certainty and predictability suggest that referrals based on these call-in powers may also be problematic. This may soon be put to the test as on October 31st, the Commission accepted the referral of the Nvidia/Tun:ai: merger based on a referral request from Italy, which used its call-in powers for this merger.
• The ECJ explicitly referred to its Towercast judgment of last year and noted that Member States may also have the possibility to review transactions under their national abuse of dominance rules. However, such a review would be a very time-consuming, post-closing procedure and would only be possible in cases where the acquiring company is indeed dominant and the acquisition of another company could constitute an abuse of that dominance. For the Commission, the Towercast judgment may not be particularly helpful, as Regulation 1/2003 (which describes the Commission's investigative powers in antitrust cases) does not apply to mergers.

The judgment is thus not the end of merger control-related deal uncertainty for “below threshold” transactions, in particular as the number of Member States with call-in powers may increase following the ECJ judgment.

The Commission may have different options as to how it responds to this judgment, but the "safest" option seems to be to push for amendment of the EUMR itself. Article 1(4) and (5) of the EUMR allows the Council to adapt the thresholds and criteria, although the Commission has so far avoided proposing amendment because this would require a qualified majority of Member States to agree on new thresholds. The fear has been that Member States could use the opportunity to demand further changes to the entire system, which would not only be very time-consuming but would also open the door to an uncertain outcome. However, the new Commissioner for Competition, Teresa Ribera, seems determined to take up the project and indeed to undertake a more substantial overhaul of the EU's merger control rules.

The ruling is good news for many companies as it increases their legal certainty. However, the victory is bittersweet for Illumina and Grail: while the ruling means that the Commission will not be able to prohibit the deal in the EU, and cannot impose a multimillion-euro fine, the deal was in any event blocked – by the FTC in the United States.