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On 3 September 2024, the EU Court of Justice (CJEU) issued its judgment on Illumina’s failed acquisition of Grail, an innovator in the field of cancer detection tests. Siding with the opinion of Advocate General Emiliou, the CJEU swiped the EC’s 2021 expanded Article 22 referral policy for below-threshold mergers off the table. In this blog post we discuss the key takeaways from the judgment and implications for future non-notifiable transactions in the EU.
The CJEU is unequivocal in its judgment: the EC did not have jurisdiction to investigate Illumina’s acquisition of Grail. The EC acted ultra vires by encouraging and then accepting referral requests from EU Member States that did not have jurisdiction under their national merger control rules. Article 22 EU Merger Regulation is not the “corrective” mechanism that the EC sought to call-in potentially anticompetitive transactions that are otherwise not subject to EU or national merger control. Only the EU legislator, and not the EC, can create such a mechanism. The CJEU noted that notification thresholds are an “important guarantee of foreseeability and legal certainty”, allowing companies to know if, and by whom, their transaction will be reviewed.
For Illumina, the judgment comes too late. It spun off Grail in June of this year following the EC’s prohibition decision. For the EC, the EUR 432 million fine for gun jumping it imposed has lost its legal grounding and Illumina has already announced that they will not pay the fine.
There is no doubt that the judgment is a major blow to the EC’s attempts to review acquisitions by large competitors of early-stage innovative companies whose (potential) competitive influence is not (yet) reflected in sales revenues (often referred to as “killer acquisitions”). Although the review of EEX’s failed acquisition of Nasdaq’s Nordic power business has shown that the EC is also willing to apply Article 22 EU Merger Regulation outside the realm of killer acquisitions. Regardless, that perceived enforcement gap, deemed by the EC to have become more important in recent years, still remains and the next EU competition Commissioner will now have to decide how to respond.
The most obvious solution may already be partly in place. An increasing number of national competition authorities (Denmark, Hungary, Ireland, Italy, Latvia, Lithuania, Slovenia and Sweden) already have call-in powers to review transactions that fall below their (national) merger control filing thresholds. They can either intervene themselves or, where appropriate, refer these mergers to the EC. Others, including the Czech Republic, France, Finland and the Netherlands, are considering the introduction of similar rules. France and the Netherlands, two strong backers of the EC’s 2021 referral policy, may soon have proper call-in powers and both authorities have already announced they would make use of it to refer such cases to the EC.
There are already signs that the EC is moving in this direction. In response to the judgment, Commissioner Vestager announced that the EC will continue to accept referrals under Article 22 from EU Member States that have jurisdiction over a merger under their national rules. The CJEU judgment also notes (in para. 217) that “it is open to the Member States to revise downwards their own thresholds determining competence based on turnover as laid down by national legislation”. However, the viability of this route depends on national rules, in particular whether these require a local nexus for a call-in. One may also query whether such a mechanism meets the requirements of foreseeability and legal certainty that the CJEU emphasizes in its judgment (see in particular paras 208 and 209).
The EC could alternatively propose revising the EU Merger Regulation to create an explicit legal basis for below-threshold referrals. However, like any legislative process, this requires alignment across EU Member States – a lengthy, politically-driven process that Commissioner Vestager sought to avoid back in 2021 by using Article 22. In the current political climate, this may also trigger further debate on, and revisions of the EU Merger Regulation not linked to below-threshold mergers, such as the impact and importance of EU industrial policy considerations in the merger control review process (for when the next Siemens/Alstom deal comes along). With the Letta report, President-elect von der Leyen’s call for a “competition policy that supports [European] companies to scale up”, and the forthcoming Draghi report, the next EC may be less daunted by this prospect than the previous one. Whether this is a route to consider will ultimately depend on the new EU competition Commissioner (which will be announced on 11 September).
The March 2023 Towercast judgment confirmed that national competition authorities have the power to review acquisitions by dominant firms under abuse of dominance rules (Article 102 TFEU or the national equivalent) as well as constituting anticompetitive agreements (Article 101 TFEU or the national equivalent – as recently done by the French competition authority), even if these are not notifiable under EU or national merger control laws. That avenue remains open for the national authorities, and we have seen recent examples of its application in Belgium and France. However, it requires a specific set of circumstances, not least a position of dominance. In the words of AG Kokott – who authored the opinion in Towercast – this mechanism should “remain the absolute exception”. In any case, it is an avenue that is currently not open to the EC. Senior EC officials have previously floated Towercast as a potential alternative to Article 22 for national authorities, but noted that this would lead to a “messier” situation, be more disruptive and offer less legal certainty for companies, in particular as the mechanism would not be confined to a post-closing referral time limit.
It remains to be seen what the impact of the Illumina judgment will be in practice, and how much room there will remain for “merger control free” transactions in the EU. The judgment has opened a new set of questions, all with a nuanced layer of complexity, that the new EC will have to grapple with. Dealmakers applauding the judgment (for good reasons) may want to keep this in mind.
In response to the judgment, the current Commissioner for Competition has already made clear that it will look for solutions for the perceived enforcement gap which has opened up again. Indeed, most major jurisdictions, including the US, UK and China, already have or are considering residual jurisdiction mechanisms (based on call-in rights). This begs the question around the role and importance of international cooperation in order to deal with mergers with allegedly worldwide competitive effects but a stronger local nexus in some regions than others, as was the case in Illumina/Grail.