Illumina/Grail: lessons from a landmark case (II)

As we discussed in our first post ([link pending]), the Illumina/Grail case—arising from the intended merger between Illumina Inc. (“Illumina”) and Grail Inc. (“Grail”) and their ensuing dispute with the European Commission (the “Commission”)—is opening up hitherto unexplored avenues in the field of merger control.

 In this second post, we analyze two other lessons drawn from this case with an undoubted impact on future mergers.

 Lesson 3: Protection of innovation as a deterrent to future mergers

 Despite not meeting either the EU or any national notification thresholds, once the Illumina/Grail merger was referred under article 22 of Regulation 139/2004, the Commission assessed it similarly to transactions that do trigger the relevant thresholds. Thus, on July 22, 2021, the Commission opened a formal in-depth investigation into the effects of the concentration on competition. On September 6, 2022, the Commission published its decision to prohibit the transaction.

The Commission argued that the acquisition could negatively affect innovation. Although Illumina and Grail are not competing companies—or, at least, not actual competitors—they operate at different stages of the same value chain: Grail develops cancer screening tests, while Illumina is the only company capable of supplying the technology necessary for their development.

In this context, the Commission argued that, by allowing their vertical integration, Illumina would have the ability and incentive to increase the prices of the technology supplied to Grail’s competitors or degrade its quality. This, in turn, could lead to foreclosure of competitors from the market for Grail’s benefit.

The novelty of the Commission’s decision lies in the fact that there was no cancer screening test market as such, as the work of Grail and its competitors was still at a preliminary stage. Thus, the decision to prohibit the merger was based on the need to protect the future market that was expected to develop in the following years, as research progressed. In this sense, the Commission argued that the commercial conditions (e.g., product quality and price) of this future market will be defined by the product development currently taking place.

However, it seems that the objective of the European Commission (and, possibly, of the national competition authorities) to ensure effective competition and avoid high concentration ratios in already existing markets is equally applicable with respect to future markets or markets in formation. Even more so when, as the Commission points out in this case, the competitive relevance of the parties is not reflected in their turnover, nor are any of the thresholds of Regulation 139/2004 met.

Lesson 4: Fines for early implementation

Independently of the European Commission’s decision of September 6, 2022, prohibiting the transaction—pending resolution of the appeal before the Court of Justice of the EU (“CJEU”)—on July 12, 2023, the Commission imposed fines for early implementation of the transaction without prior approval (gun jumping).

The Commission and national competition authorities have been increasingly active in recent years in detecting and sanctioning companies for gun jumping . The novelty of the Illumina/Grail case is that, for the first time, a fine has been imposed on a company not obliged to notify.

According to Regulation 139/2004, in acquisitions of control, the notification obligation falls on the acquiring companies. However, in this case, the Commission has sanctioned both the acquiring company (Illumina), with €432 million, and the acquired company (Grail), with €1,000. To justify the (symbolic) sanction on the latter, the Commission argues that Grail took an active role in the infringement, carrying out the necessary steps for the transaction to be implemented in August 2021—while it was still under the Commission’s scrutiny.

If Grail finally appeals the fine, the General Court will have to rule on the lawfulness of the Commission’s sanctioning practice in this context, in light of the regime established under Regulation 139/2004.

Conclusions: Possible amendment in full?

In contrast to the usual notification procedures, characterized by a certain level of predictability, the legal discussion between Illumina, Grail and the European Commission has taken such a turn that it is risky to predict how it will end. The final word will rest with the CJEU, which will have to rule on the various appeals filed in connection with this case. A cascade effect cannot be ruled out either, and the first appeal—on whether the Commission is competent to analyze a concentration that did not meet any national or EU thresholds—may guide the resolution of the rest or strip them of content. The Court’s decision will have a direct impact on other concentrations. For instance, there are at least two other transactions not meeting any notification threshold —EU or national— in respect of which the Commission has accepted the referral request from several national competition authorities under article 22 of Regulation 139/2004 (cases M.11212 Qualcomm/Autotalks and M.11241 EEX/Nasdaq Power).

Regardless of how the various pending disputes are resolved, the Illumina/Grail transaction has given rise to a number of issues that the European legislator will have to address, possibly in the context of the ongoing review of the merger control regime. The Commission will have to strike a balance between, on the one hand, the aim to prevent potentially anticompetitive transactions from escaping preventive control (while taking care not to disincentivize innovation); and, on the other hand, guaranteeing the legal certainty that must guide any administrative action.