Killing three birds with one stone: Illumina wins Article 22 battle

The GC had considered that the Commission could accept referrals by national competition authorities (NCAs) to review concentrations, irrespective of whether the transaction was notifiable under the national merger control regime (see our August 2022 newsletter). 

The ECJ has now clarified that the EUMR does not allow the Commission to accept such referrals where NCAs lack jurisdiction under relevant national laws and that the Commission is to refrain from revising the EUMR thresholds single-handedly: “it is for the EU legislature alone to review those thresholds” or for “Member States to revise downwards their own thresholds.” 

Companies involved in M&A deals should nevertheless remain on their toes: national call-in powers are becoming more prevalent.

Background

In September 2020, Illumina announced its acquisition of Grail, a start-up active in pipeline cancer detection technologies, with no European revenues. The acquisition was not notified for merger control review to the Commission or any EU Member State, as it fell below the relevant thresholds.

Following a complaint in December 2020, the Commission invited Member States to refer this concentration for its review under Article 22. France was the first to respond and was later joined by Belgium, Greece, Iceland, the Netherlands and Norway. Shortly after its new Article 22 Guidance publication, the Commission accepted the referral request on 19 April 2021. It believed that the concentration merited a review because Grail’s turnover allegedly did not accurately reflect its competitive significance, highlighted by the EUR 5.9 billion deal value. 

In parallel to notifying the concentration to the Commission, Illumina (supported by Grail) appealed the referral decision. However, in July 2022, the GC backed the Commission’s assertion of jurisdiction to review the deal. The GC stated that Member States are entitled to refer “any concentration”, regardless of the existence or scope of national merger control rules, provided that the conditions set out in Article 22 are satisfied. Both Illumina and Grail appealed the GC’s decision.

The ECJ ruling

On 3 September 2024, the Grand Chamber of the ECJ followed Advocate General (AG) Emiliou’s opinion. 

The AG criticised the Commission and the GC’s interpretation of Article 22 as being capable of “upsetting the carefully devised balance” between the various objectives pursued by the EUMR and blurring the allocation of powers assigned to the Commission and NCAs. According to the AG, this interpretation would create “a competence sandwich” whereby the Commission is competent to review large mergers, NCAs to review mergers below the EUMR thresholds but above the national thresholds, and the Commission again to review mergers below the national thresholds.

The ECJ considered that the GC was right to hold that the scope of Article 22 should be analysed from a contextual and teleological perspective, as informed by the legislative history of that provision. However, the ECJ concluded that the GC had erred in its analysis of Article 22. When placed in the right historical, contextual, and teleological context, Article 22 does not allow NCAs to refer concentrations that fall outside their own competence for review to the Commission. To be eligible for referral to the Commission under Article 22, a concentration must meet the thresholds of the national system of the NCA referring the case. 

In this context, the ECJ clarified the allocation of powers between the Commission and the EU legislator on the one hand and the Commission and the NCAs on the other hand:

• The role of Article 22 is not to provide for a corrective mechanism, as it was not intended to remedy deficiencies inherent in the EU merger control system based principally on turnover thresholds. The EU turnover thresholds provide an important guarantee of foreseeability and legal certainty through a clear allocation of powers between the Commission and NCAs. 

• The ECJ recognised that the acquisition of innovative undertakings capable of playing an important competitive role even though they generate little or no turnover at the time of the concentration (as was the case for Grail) could warrant the need for merger control review, even if turnover thresholds are not met. However, it would be for the Member States to revise downwards their own thresholds as laid down by national legislation. 

• Moreover, even if the turnover thresholds under the EUMR were to prove insufficiently effective to catch certain problematic concentrations (such as so-called ‘killer acquisitions’, where a potential competitor is acquired by an established market player in order to avoid future competition; see our August 2022 newsletter), it is not for the Commission, but “for the EU legislator alone to review those thresholds or to provide for a safeguard mechanism enabling the Commission to scrutinise such a transaction.”

• Finally, the ECJ took the opportunity to remind Member States of its 2023 Towercast­ judgment (see our April 2023 newsletter), confirming that NCAs are not precluded from investigating whether a non-notifiable concentration can constitute an abuse of a dominant position prohibited under Article 102 TFEU if permitted by national procedural rules. 

While the judgment makes it clear that the Commission was not competent to accept a referral of the concentration between Illumina and Grail, Illumina in the interim completed the divestiture of Grail on 24 June 2024 already, following a ruling from the US Court of Appeals for the Fifth Circuit in December 2023. Nevertheless, the current jurisdictional challenge is still key to Illumina’s other pending appeals against (i) the Commission’s decision prohibiting the concentration and requiring Illumina to unwind the concentration; and (ii) a record EUR 432 million gun-jumping fine for implementing the concentration before the Commission had completed its merger control review. 

The ECJ’s ruling is therefore set to kill not one but three birds for Illumina, creating a domino effect with potentially costly implications for the Commission. This includes a repayment of the EUR 432 million gun-jumping fine with accrued interest (see our July 2024 newsletter on the Deutsche Telekom case).

Finally, the ECJ’s ruling will have implications for the Commission’s decisions to accept other referrals based on its new Article 22 policy. The legal basis for these decision may now have also fallen away. 

Beware: not all non-reportable deals go scot-free

With the ECJ’s ruling, the Commission lost a key part of its merger review toolkit aimed at capturing ‘killer acquisitions’. However, parties engaged in deals that do not meet the EU turnover thresholds are not automatically in a safe space.

As mentioned above, NCAs may resort to abuse of dominance rules to address killer acquisition by applying the Towercast judgment (see our April 2023 newsletter) to non-notifiable concentrations.

Moreover, new legislation has been adopted at a national level by several Member States to catch below-threshold deals. Germany and Austria adopted transaction value thresholds in 2017 already. Additionally, NCAs in Denmark, Hungary, Ireland, Italy, Latvia, Lithuania, Slovenia and Sweden enacted call-in provisions, enabling them to scrutinise transactions that fall below their ordinary filing thresholds. These options also enable a referral to the Commission under Article 22. 

In the aftermath of the ECJ’s decision, more NCAs might be incentivised to expand the scope of their national merger control regimes. A new tool catching below-thresholds mergers is looming in the Netherlands, where the Dutch NCA (ACM) has been very vocal about the impact that small mergers can have on competition and the need to consider amendments to the Dutch merger control regime. 

Conclusion

Although the ECJ has pulled the breaks on the Commission’s novel approach to Article 22, steps taken by the NCAs may blunt the spike of the ECJ’s judgment, as Member States with transaction value thresholds or call-in powers can refer concentrations to the Commission based on Article 22, even if turnover thresholds are not met. 

And so, despite this judgment, companies will continue to have little legal certainty as to whether a deal will end up being subject to merger control review. Companies are thus advised to carefully assess the applicability of the increasing number of individual national call-in regimes to determine whether a Member State could claim jurisdiction and, in turn, potentially refer the case to the Commission for review. In addition, companies should remain on the lookout for potential abuse of dominance allegations.