In a much-anticipated opinion, Advocate General Nicholas Emiliou (AG) has advised the European Court of Justice (ECJ) to set aside the General Court (GC)’s Illumina/GRAIL judgment.

The AG is of the view that the European Commission (EC) has no ability to review transactions under Article 22 of the EU Merger Regulation (EUMR) that do not meet EU or national merger control thresholds. If the ECJ follows the opinion, the EC’s authority to scrutinise below-threshold mergers – and in particular killer acquisitions – will be significantly affected.

Key takeaways:

• The AG recommends that the ECJ set aside the GC’s ruling endorsing the EC’s decision to accept the Article 22 referral request for the assessment of Illumina’s acquisition of GRAIL and annul the EC's decisions on the referral. The EC accepted the referral where neither EU nor Member States merger control filing thresholds were met, something that the AG believes the EC was not empowered to do
• In the AG’s view, the GC erred in its interpretation and application of Article 22, taking into account the history, context and purpose of that provision, as well as the logic of the EU merger control system and fundamental principles of EU law
• The AG notes that the GC's interpretation of Article 22 significantly extends the scope of the EUMR and the EC's jurisdiction, whilst creating substantial uncertainty for merging parties
• The AG’s opinion is non-binding, but if endorsed by the ECJ, it will have significant implications for the EC’s ability to review below-threshold deals, and in particular killer acquisitions.

Background

The AG’s opinion concerns the EC’s contentious revised approach to Article 22 of the EUMR, which encourages EU Member States to refer transactions to the EC for review even where EU and national merger control filing thresholds are not met. The rationale behind the new policy was to enable the EC to review so-called “killer acquisitions”, ie transactions likely to eliminate a source of future competition where at least one of the parties’ turnover does not reflect its actual or future competitive potential and thus often fall below the merger control thresholds.

Illumina’s planned acquisition of GRAIL was the first deal referred to the EC under the revised policy. The parties contested the EC’s jurisdiction to review the transaction and appealed to the GC.

In a landmark 2022 ruling, the GC backed the EC’s interpretation of its powers under Article 22. It ruled that Article 22 is a “corrective mechanism” that allows Member States to refer “any concentration” to the EC and provides the flexibility necessary to enable the EC to examine mergers likely to impact competition in the EU but which would otherwise escape scrutiny.

The GC based its support of the EC’s approach on a “literal, historical, contextual and teleological” interpretation of Article 22. Both Illumina and GRAIL appealed the GC’s judgment. Ultimately, the EC blocked the transaction due to antitrust concerns, but the parties persisted with their appeal.

AG contests GC’s interpretation of Article 22

In the AG's view, the GC erred in its interpretation of Article 22. He says that “under a proper construction, that provision does not empower the Commission to adopt decisions such as those challenged” (ie the decision accepting the referral and the requests to join it, as well as the EC’s letter informing Illumina and GRAIL of that referral request).

The AG disagrees with the GC's broad interpretation of Article 22, taking into account the wording, origin, context and purpose of the provision, together with the logic of the EU merger control system and a number of fundamental principles of EU law, such as legal certainty.

He stresses that the GC's interpretation of Article 22 would significantly extend the scope of the EUMR and the EC's jurisdiction. The AG notes that “in one fell swoop, by means of an original interpretation of Article 22 EUMR, the Commission gains the power to review almost any concentration, occurring anywhere in the world, regardless of undertakings’ turnover and presence in the European Union and the value of the transaction, and at any moment in time, including well after the completion of the merger.”

He observes that such a broad interpretation raises issues related to institutional balance, territoriality of EU law, international comity, equality and proportionality, and the principle of effectiveness. Overall, he argues that the GC's interpretation created uncertainty and difficulties for merging parties and contradicts well-established legal principles.

Below we provide key observations from the opinion.

Literal interpretation – not by itself enough

The AG agrees with the GC that the wording of Article 22, on its face, may indicate that Member States can refer any transaction to the EC, regardless or not of whether they exceed national thresholds. He also shares the GC’s view (in contrast to the EC’s arguments) that as in this case, where the legal provision in question is not clear, other methods of interpretation should also be used.

However, this is where the points of agreement between the AG and GC end. The AG takes each of the methods of interpretation considered by the GC in turn and sets out his diverging opinion.

Historical interpretation

The AG argues that the historical documents relied on by the GC have limitations in demonstrating the EU legislature’s intention. The passages cited do not, in fact, support the GC’s conclusions, more pertinent passages were overlooked or downplayed and, when considered in full, contradict the GC’s findings. The AG also observes that the GC did not consider other documents that were relevant to the assessment.

The GC focused its analysis on the possibility for Member States to trigger the Article 22 referral mechanism, regardless of whether they have a merger control system in place or not (which is not in question). Instead, says the AG, it should have focused on whether Member States which do have a merger control system can refer cases which do not fall within that system.

Contextual interpretation

The AG notes that neither the other provisions of the EUMR nor the various parts of Article 22 support the GC’s contextual interpretation that a referral request under Article 22 may be submitted irrespective of the application of national merger control rules. The AG also argues that the GC downplayed some elements of context that shed light on the interpretation, as well as ignoring others that appear to contradict its conclusions.

In his view, while there are elements pointing in both directions, those indicating that Article 22 should be interpreted more narrowly are “far more numerous and more relevant”.

Teleological interpretation

Based on the historical and contextual assessment, the AG notes two objectives of Article 22: (i) to allow a review of transactions that could distort competition locally in EU Member States that do not have merger control systems, and (ii) to allow a single EC review of transactions notifiable in several Member States in order to avoid multiple filings (the “one-stop-shop” objective). He disagrees with the GC’s view that Article 22 pursues a third “gap-filling” objective allowing control of below-threshold mergers.

The AG points to several overarching objectives of the EUMR as a whole: a mechanism for shared jurisdiction between the EC and the national competition authorities; an efficient one-stop-shop system; and an efficient and predictable system that provides legal certainty to merging parties.

The AG concludes that the GC also misinterpreted Article 22 in light of these wider objectives, finding that the court's broad application of the referral mechanism could disrupt the balance between them.

Legal certainty for the parties – at the heart of the concerns

In the AG’s opinion, it is “impossible to overemphasise the importance” of predictability and legal certainty. Parties need to know, with a relatively high level of confidence, whether their proposed deal will be subject to antitrust scrutiny and by which authorities, and when a definitive decision can be expected. This is particularly the case for merger control regimes like the EU, which impose a global ban on closing during the review period.

The AG believes that the GC’s interpretation of Article 22 leaves much uncertainty for merging parties and potentially has far reaching, and likely unintended, consequences.

It would mean that unless merging parties “take positive action to inform the 30 national authorities of the existence of a non-notifiable merger, those parties cannot have any legal certainty as to whether the Commission will at some point in the future, be asked to review the merger on the basis of Article 22 EUMR and, if so, within which time frame”.

He notes that this is an informal procedure on which there is no guidance relating to, for example, who can notify the authorities and what information needs to be submitted. It would clearly have significant timing implications for merging parties and increase complexity and execution risk. It could also mean that companies with limited or non-existent sales in the EU (which can only get legal certainty by filing 30 informal notifications) are in a worse position than those with more significant EU activities (which can take advantage of the one-stop-shop system or a more limited number of national filings).

Looking forward

The AG’s opinion is significant in in casting doubt on the GC’s ruling. But importantly, it is not binding on the ECJ.

If the ECJ follows the opinion, it would be a significant blow to the EC. In particular, the authority would need to look elsewhere for a means to plug the perceived gap in its ability to review potentially anti-competitive mergers, including killer acquisitions.

The AG suggests one solution – the ECJ’s ruling in Towercast, which confirmed that the EU abuse of dominance rules can be used to scrutinise below-threshold transactions. However, this route has drawbacks for the EC. First, it requires the transaction to involve a dominant firm. Second, it entails an investigation of a completed transaction, meaning that any antitrust concerns identified may be more difficult to remedy. The EC is therefore unlikely to be satisfied that this mechanism will give it sufficient oversight of below-threshold deals.

An ECJ ruling in line with the AG’s opinion will have a significant impact on Illumina’s other pending appeals (on interim measures, the prohibition decision, the order to unwind the deal and the gun-jumping fine for completing the transaction while the EC’s review was ongoing).

It will also have implications for pending Article 22 referral cases before the EC. One of these – Qualcomm’s acquisition of Autotalks – has been abandoned by the parties due to antitrust concerns in several jurisdictions. Another, EEX/Nasdaq Power, is currently in pre-notification discussions with the EC. However, the latest case (Brasserie Nationale’s acquisition of brewery Boissons Heintz) is unlikely to be impacted by any ECJ reversal of the EC’s Article 22 policy. This deal was referred by Luxembourg in line with the ‘old interpretation’ of Article 22, given that Luxembourg does not yet have a merger control regime in place.

The appetite of antitrust authorities to review below-threshold deals is not limited to the EC. Over the past couple of years it has become a global trend, and one that shows no signs of abating. For merging parties, this adds to the growing uncertainty and complexity of the international merger control landscape. Read more about this in our recent report on global trends in merger control enforcement.