Lights on: ECJ's Illumina sheds light on future oversight of killer acquisitions in the EU

On 3 September 2024, the Court of Justice of the European Union (ECJ) published its much-anticipated judgment in Illumina v Commission. The court concluded that the European Commission does not have jurisdiction to review transactions referred by EU Member States' national competition authorities (NCAs) under Article 22 of the EU Merger Regulation (EUMR) where the referring NCA does not have jurisdiction to review the transaction in question. 

Key takeaways

• The ECJ concluded that the European Commission cannot accept referrals from NCAs where the referred deal does not meet the national merger control thresholds in the referring Member State.
• The judgment concludes the long-running Illumina / Grail saga, following the divestment of Grail which was completed in June 2024.
• An increasing number of NCAs in EU Member States have the power, in certain circumstances, to call in transactions which do not meet national notification thresholds. Below threshold transactions are therefore still likely to be scrutinised and the European Commission has indicated that it expects NCAs will continue to refer transactions to the European Commission under Article 22 of the EUMR.

Article 22 EUMR

Article 22 of the EUMR enables EU Member States' NCAs to ask the European Commission to review a transaction which (i) affects trade between EU Member States and (ii) would have a significant impact on competition in the territory of the Member State making the request. This mechanism was originally designed to enable Member States without national merger control regimes to refer transactions to the European Commission and, with the development of national regimes, the European Commission had generally discouraged referrals of concentrations that fell outside the referring Member State's jurisdiction.

In March 2021, the European Commission published updated guidance on Article 22 EUMR reversing that approach. In the updated guidance, the European Commission encouraged Member States to refer certain transactions that do not meet national merger control thresholds and set out the criteria that it may consider when deciding whether to accept a referral. This policy change reflected the European Commission's (and NCAs') increasing interest in so-called "killer acquisitions" (i.e. where a large incumbent acquires a target which generates no / limited revenues but has significant competitive potential). The guidance highlighted the European Commission's interest in the tech and pharmaceutical sectors in particular. 

Illumina / Grail transaction

In September 2020, Illumina (a US biotechnology company) announced its proposed acquisition of Grail, another US biotechnology company. At the time, Grail did not generate any turnover and therefore did not meet the EU and national jurisdictional thresholds. 

In February 2021 (before the updated Article 22 guidance was published), the European Commission invited NCAs to refer Illumina's proposed acquisition of Grail to it. On 9 March 2021, France made a referral request which was subsequently joined by Belgium, Greece, Iceland, the Netherlands and Norway. The European Commission accepted the referral on 19 April 2021, having concluded that the proposed transaction could affect trade within the EU, threatened to significantly affect competition in France and that Grail's competitive significance was not reflected in its (lack of) turnover. 

The parties completed the transaction in August 2021 but, in September 2022, the European Commission prohibited the transaction and ordered Illumina to unwind the transaction. The European Commission subsequently imposed a record fine of EUR 432 million fine on Illumina for gun-jumping (i.e. closing the transaction before without receiving clearance from the European Commission) in July 2023. 

General Court judgment

Illumina appealed to the General Court, arguing that the European Commission had erred in accepting the referral under Article 22 EUMR because none of the EU Member States had jurisdiction in the first place. On 13 July 2022, the General Court dismissed Illumina's appeal and held that the European Commission has jurisdiction to review transactions where the EU and national merger control thresholds are not met provided the Article 22 conditions set out above are met. 

The General Court referred to the literal, historical, contextual and teleological interpretation of Article 22 EUMR and concluded that:

• The language of Article 22(1) does not require an NCA to have jurisdiction to review the deal in order to make a referral request.
• Article 22's original objective was to facilitate the review of mergers with cross-border effects.
• Article 22 supplements the EU merger control thresholds and therefore enables the European Commission to review transactions which do not meet these thresholds.
• Article 22 is intended to be a "corrective mechanism" to ensure that transactions which are "capable of significantly impeding effective competition in the internal market" but which do not meet (national or EU) jurisdictional thresholds do not escape review.

The General Court also dismissed several procedural grounds of appeal. Notably, Illumina argued that the referral request had been submitted to the European Commission after the 15 working day deadline set out in Article 22. However, the General Court concluded that "made known" requires the "relevant information to be actively transmitted to that Member State" and therefore the referral was made within the prescribed time limit.

The ECJ's judgment

On 3 September 2024, the ECJ upheld Illumina's appeal and overturned the General Court's decision. The ECJ's interpretation of the wording, history and context of Article 22 EUMR emphasised the "important guarantee of foreseeability and legal certainty for the undertakings concerned, which must be able easily and quickly to identify to which authority they must turn, and within what time limit and in what form, particularly as regards the language and content of the information required, they must refer the matter to the Commission when they participate in a concentration". 

The ECJ recalled that the aim of Article 22 EUMR is to allow Member States which do not have merger control regimes to review and refer transactions and enable the European Commission to review a transaction in line with the "one-stop shop" principle for procedural efficiency and legal certainty reasons. The ECJ concluded that Article 22 EUMR is not a "corrective mechanism" and should not be allowed to "fill alleged gaps in the merger control rules of the European Union and the Member States by allowing the scrutiny of concentrations that fall below the European dimension turnover thresholds and the national merger control thresholds, thereby bypassing the fundamental statutory requirements for modification of the relevant EU law and domestic rules".

According to the ECJ, the European Commission's interpretation of Article 22 EUMR, as endorsed by the General Court, was "liable to upset the balance" and was "at odds with the principle of institutional balance". The ECJ stressed that "effectiveness, predictability and legal certainty must be guaranteed to the parties of a concentration". 

As a result, the European Commission is no longer able to accept referral requests where the referring NCA would not have jurisdiction to review the transaction itself.

Implications going forward 

Over the years, EU Member States have made significant use of the "traditional" Article 22 EUMR referral mechanism, where concentrations are originally notified to NCA(s). The fact that the "expanded" Article 22 referral cannot be used for below-thresholds concentrations has sparked debate amongst enforcers, businesses and the wider antitrust community, as to the most appropriate enforcement mechanism.

Commissioner Vestager has commented that the (next) European Commission “will consider the next steps to ensure that the Commission 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”. In its ruling, the ECJ also recognised 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”. Competition authorities have already made it very clear that interest in transactions similar to Illumina / Grail is high.

Increasing importance of NCAs

First and foremost, the ruling in Illumina means that NCAs will play an increasingly important role in reviewing killer acquisitions. An increasing number of NCAs have been granted new powers to call-in below-threshold transactions which would enable them to review potentially problematic transactions or refer these cases to the European Commission.

Currently, Denmark, Hungary, Italy, Ireland, Latvia, Lithuania, Slovenia and Sweden have a broad range of powers that allow for the review of below-threshold mergers. For example:

• the Italian NCA has new powers to review transactions which may restrict competition where the new thresholds criteria are met, including if the parties' combined worldwide turnover exceeds EUR 5 billion. This includes the power to call-in completed transactions (see our October 2022 update); and
• the Irish NCA has the ability to call in any transaction which it believes "may" have an effect on competition in Ireland.

Each country's approach to these powers will vary, increasing the level of uncertainty in the system. Other NCAs (including the French Autorité de le concurrence which has previously shown support for the European Commission's approach to Article 22 EUMR) have indicated they are seeking similar powers following Illumina. 

Reviews under the Towercast principle

As confirmed in the Towercast judgment, NCAs have the power to conduct ex post reviews of transactions under Article 101 (the prohibition on anticompetitive agreements) and Article 102 (the prohibition on abusing a dominant position) of the Treaty on the Functioning of the European Union (TFEU), even if the transaction falls below the EU and national jurisdictional thresholds, provided that the deal has not been notified to an NCA. This power has implications for legal certainty and risks for businesses (not least because it may involve unwinding closed deals), it remains to be seen whether NCAs will make much use of this power, which requires significant resources over a longer time period. To date:

• in March 2023, the Belgian competition authority opened an investigation under Article 102 into a telecommunications merger on the same day as the ECJ ruling in Towercast. This investigation was closed in November 2023 after the buyer divested the target; and
• in 2019, the French competition authority opened an investigation under Article 101 into several asset swap transactions between meat-cutting companies. In May 2024, the case was closed due to a lack of evidence.

In April 2024, Oliver Guersent (Director General of the Directorate General for Competition of the European Commission) remarked that Towercast could be a potential alternative to Article 22 of the EUMR if the ECJ upheld Illumina's appeal, but that this would be a "messier" approach which would offer parties less legal certainty since it is the period for deals to be reviewed is not time-restricted.  

Currently the scope for the European Commission to use Article 102 to review mergers is limited by Regulation 1/2003 (meaning only NCAs are able to apply Article 102 using Towercast). When this was put to Oliver Guersent, he noted that Regulation 1/2003 is currently under review. 

Revision of EUMR thresholds?

The ECJ suggested that the EUMR could be revised to amend: (i) the jurisdictional thresholds and/or (ii) referral rules to explicitly allow NCAs to refer transactions which do not meet national merger control thresholds. However, in a September 2020 speech, Commissioner Vestager commented that the existing thresholds generally work well but they did not capture a "handful of mergers each year that could seriously affect competition". She noted that one solution is to introduce a new value based threshold but that it is hard to set this type of threshold at the right level so "changing the merger regulation, to add a new threshold like this, doesn't seem like the most proportionate solution". It is possible that the European Commission will revisit this idea following the ECJ's judgment but this seems unlikely given the lengthy legislative and political process involved. 

Efforts pointing to stricter enforcement action for killer acquisitions may be frustrated if an innovation defence is introduced in a merger control context (as proposed in the Draghi Report). 

Conclusion

While the ECJ's ruling in Illumina is a significant blow for the European Commission, companies will continue to face uncertainty for below-threshold transactions given the increasing trend for competition authorities to have the power to call in transactions which do not meet the usual jurisdictional thresholds. The European Commission has commented since the judgment that the scope for referrals following the ECJ's judgment is broader than it was at the time when Illumina / Grail was referred due to the increasing number of NCAs with these call in powers. It remains to be seen whether the European Commission will continue to be able to review many transactions similar to Illumina / Grail moving forward. 

In addition, we may see NCAs increasingly making use of the Towercast doctrine to review non-notifiable transactions under Article 101 or 102 TFEU. While the appeal was ultimately successful, the consequences are unlikely to be the result envisaged by Illumina and Grail when they lodged their appeals to the General Court. 

With thanks to Florence Chan for her contribution.