On March 21, 2024, an adviser to the EU’s highest court, the Court of Justice of the European Union (CJEU), proposed setting aside the judgment of the lower court in Illumina v Commission. The General Court (GC) had previously upheld the European Commission’s (EC’s) ability to review transactions that did not meet EU-level or national thresholds but were referred to the EC by an EU Member State under Article 22 of the EU Merger Regulation (EUMR).
Advocate General (AG) Emiliou’s Opinion criticizes the EC’s revised Article 22 EUMR policy, noting that the GC’s ruling would give rise to a “very significant extension” of the EC’s jurisdiction, with the EC being able to “review almost any concentration, occurring anywhere in the world.” While AG Opinions are not binding on the CJEU, they have been followed in the majority of cases.
Background
Illumina and Grail are global biotechnology companies headquartered in California. Illumina is a leading supplier of next-generation sequencing (NGS) systems for genetic and genomic analysis. Grail develops “multi-cancer early detection” (MCED) tests that rely on NGS systems. Grail was originally founded by Illumina in 2016, but was spun out to be a standalone company. Four years later, Illumina sought to acquire it for $8 billion.
In March 2021, the EC published guidance on its revised Article 22 referral policy (see Wilson Sonsini Alert). Article 22 enables the national competition authorities of one or more EU Member States to request that the EC examine a deal that does not meet the EU-level or national thresholds, but that “affects trade between Member States” and “threatens to significantly affect competition within the territory of the Member State or States making the request.” The referral mechanism is often referred to as the “Dutch clause,” as it was originally introduced to give Member States that did not have national merger control regimes (such as the Netherlands, at the time) a legal basis to ensure potentially problematic mergers could still be reviewed. The EC's policy reversal (it had discouraged referrals absent jurisdiction) was viewed in some corners as an indirect attempt to “legislate” for expanded jurisdiction, stretching the mechanism significantly beyond its original purpose in a bid to close a perceived enforcement gap and tackle so-called “killer acquisitions.”
Just one month after the launch of the revised policy, the EC accepted a below-threshold Article 22 referral of the Illumina/Grail deal from France, and requests to join that referral from several other Member States. Even though Grail had no EU turnover, the EC accepted the referral based on the cross-border impact of the deal and the fact that Grail had competitive significance beyond its immediate sales. Both the U.S. Federal Trade Commission and the EC challenged the deal, focusing on concerns that Illumina would have the ability and incentive to prevent rivals from developing MCED tests, a product that at that point only Grail had released commercially and for which its systems were a necessary input.
Despite the pending challenges, Illumina announced in August 2021 that it had completed the acquisition. The EC imposed (for the first time) interim hold separate measures for the rest of its review, and subsequently prohibited the transaction. It later fined Illumina a record €432 million for implementing the transaction without prior EC approval and imposed a symbolic fine of €1,000 on Grail—the first time a gun-jumping fine was levied against a target company. The EC ordered Illumina to divest Grail in October 2023.
The Court Saga
Shortly after the referral in 2021, the companies brought an action for annulment of the EC decisions to accept the Member States’ referral requests. The GC dismissed the action. It found, inter alia, that the EC interpreted Article 22 EUMR correctly; that Article 22 is a “corrective mechanism”; and that it has the necessary flexibility for its objective of permitting effective control of mergers with significant effects on competition in the EU.1The GC supported the EC’s interpretation of Article 22 that Member States may refer deals irrespective of whether they fall within the scope of their own national merger control rules.2
The parties appealed to the CJEU. In his Opinion, AG Emiliou reviewed the historical documents and preparatory works behind the adoption of the EUMR. In his view, “a number of other interpretative elements” concerning the “history, context and objective of the provision,” and being “of a broader systemic significance,” made it “quite clear” that the GC erred in its interpretation of Article 22.3Notably, the AG remarks that companies with limited or no EU revenue would end up in a situation “which is considerably worse” than those with significant EU activities, as the latter can benefit from the “one-stop-shop” system in the EU (which results in mergers that meet the EU-level thresholds or the thresholds in three or more Member States being able to notify with just the EC) or at least clear national filings based on thresholds, with the filings “calculated in advance.” This results in a “disproportionate burden, in terms of costs and risks.” Companies party to otherwise non-notifiable transactions “have no means to predict the fate of their merger” unless they file informal notifications with all 30 EEA countries.
The AG proposed that the CJEU should set aside the GC judgment and annul the EC decisions accepting the referral of the transaction.4
Key Takeaways
If the CJEU follows the AG’s Opinion, it will be somewhat of a pyrrhic victory for Illumina: Illumina stated that it would not halt its divestment of Grail, which is scheduled to be completed this year. However, a success before the CJEU would invalidate the basis for the monumental €432 million ($473 million) gun-jumping fine, which Illumina is challenging separately (along with the prohibition decision and divestment order). It could also open the possibility of a damages claim by Illumina against the EC. The three subsequent Article 22 cases will also be impacted.
An additional factor is the interplay between Article 22 EUMR and the EU’s Digital Markets Act. Article 14 of the DMA requires designated gatekeepers to inform the EC of every acquisition where the merging parties or the target provide core platform services or any other services in the digital sector or enable the collection of data, regardless of whether EU thresholds are met. Member States will be notified of the deals and will have the power to refer under Article 22—ensuring the EC has an effective mechanism to take jurisdiction over any tech transaction referred to it, regardless of thresholds (for now). If the CJEU rules against the EC’s recent expansive interpretation of Article 22, this pathway for catch-and-review of below-threshold deals will be shut off.
However, a recent judgment (Towercast)5enables an ex post review of below-threshold transactions, under abuse of dominance rules.
A CJEU ruling can be expected in the coming months. Illumina/Grail resulted in the first review under the EU's revised Article 22 policy, the first use of interim measures in a merger review, a record gun-jumping fine, the first gun-jumping fine on a target company, and multiple appeals. It may also see a return to legal certainty in Europe for dealmakers.
[1] Judgment of the General Court, July 13, 2022, Illumina v Commission, Case T-227/21, ECLI:EU:T:2-22:447, paragraphs 142-143.
[2] Ibid., paragraph 183.
[3] Opinion of Advocate General Emiliou, delivered on March 21, 2024, Illumina, Inc. v European Commission, and Grail LLC v Illumina Inc., European Commission, Joined Cases C-611/22 P and C-625/22 P, ECLI:EU:C:2024:264, paragraphs 51, 198, 234.
[4] Ibid., paragraph 265.
[5] See the Wilson Sonsini European Antitrust Bimonthly Bulletin, March-April 2023.
