Illumina/Grail case: CJEU annuls Commission’s referral decision

Almost four years after Illumina Inc. ("Illumina")—a genomic sequencing company—announced its intention to acquire Grail Inc. ("Grail")—a company engaged in developing a multi-cancer early detection test—the Court of Justice of the European Union (CJEU) has ended one of the most debated issues in merger control in recent years: the European Commission (EC) cannot impose prior notification on concentrations that do not exceed European or national merger control notification thresholds.

The judgment of September 3, 2024, (case C-611/22 P and C-625/22 P, the "CJEU judgment") is available here.

The origin of the debate lies in the EC’s interpretation of article 22 of Council Regulation (EC) 139/2004 on the control of concentrations between undertakings (or EU Merger Regulation, EUMR). Even when Illumina’s acquisition of Grail did not meet the notification thresholds of the EUMR or of Member States, the EC invited all Member States concerned to submit a referral request for analysis. Six national authorities made a referral request, which the EC accepted through decisions that the CJEU has now annulled. The different implications of the decisions by the Commission have been addressed in our previous Posts | Illumina/Grail: lessons from a landmark case I, II and III.

Illumina filed a suit before the General Court (GC), challenging the EC’s decisions accepting the referrals, but the GC upheld the EC’s decisions in judgment T-227/21 of July 13, 2022.

Finally, the CJEU followed the Conclusions of Advocate General (AG), Nicholas Emiliou—who considered the EC’s and GC’s positions to be inadmissible, to the surprise of many, but to the comfort and reassurance of others—and upheld the appeals of Illumina and Grail.

Aim of article 22 EUMR

The change in the EC’s interpretation of article 22 EUMR was in response to its interest in intervening in concentrations that could significantly impede effective competition in the EU market, but which do not reach EU or national notification thresholds, and hence are not subject to prior authorization. This is the case of so-called "killer acquisitions", i.e., acquisitions by companies aimed at neutralizing or eliminating small companies seen as possible sources of future competition.

The GC, as seen in our previous Post | The GC confirms Commission’s extended merger control powers, acknowledged the EC’s approach and considered that article 22 EUMR constituted a “corrective mechanism” of the merger control system in the EU, enabling the Commission to intervene in any concentration capable of restricting or impeding competition in the internal market, and not only when European or national thresholds requiring notification are met.

However, the CJEU’s judgment revokes the re-interpretation of article 22 EUMR—started by the EC and then taken over by the GC—concluding that it does not allow Member States to request referral of a concentration over which they do not have jurisdiction, based on their own national merger control rules.

The CJEU stressed that a merger control system based on thresholds, by definition, is incapable of covering all potentially problematic concentrations for the competition in the market. Although it is true that the EUMR seeks to establish a system of effective control of all concentrations in relation to their effect on competition in the internal market, it also seeks to establish a predictable control system for companies, considering the need for legal certainty. These are two somewhat opposing objectives and, therefore, a balance is required between them. This is primarily achieved through a threshold system and the referral mechanisms in the EUMR. In line with the AG’s position, the CJEU considers that the EC’s and GC’s broad interpretations of article 22 EUMR are liable to upset the balance between the two objectives. This undermines the effectiveness, predictability and legal certainty that must be guaranteed to the parties to a concentration.

The paradox that a total absence of jurisdiction under the European and national merger control systems would lead to the creation and assumption of that same jurisdiction by the EC is therefore resolved. The CJEU has prevented national authorities from conferring or transferring the analysis of a concentration over which they have no jurisdiction—since the respective national thresholds are not met—to another competition authority (the EC) that has no jurisdiction either.

Future implications of the judgment

The revocation of the GC’s judgment and the EC’s decisions to review the concentration will have implications beyond the Illumina/Grail saga.

First, the CJEU still has pending matters arising from the Illumina/Grail transaction. However, the EC issued a press release to report on revoking several of its decisions in the light of the CJEU judgment, concluding that it did not have jurisdiction to adopt them (available here). These decisions include (i) the starting of the in-depth investigation into the concentration (case M.10188), (ii) the prohibition of the transaction (case M.10188), (iii) the imposition of interim measures ordering Illumina to keep Grail separate from its own corporate structures until it resolved the case (case M.1049), (iv) the order to unwind the acquisition of Grail (case M.10939), and (v) the fines imposed on Illumina and Grail for gun-jumping (case M.10483). It is likely that Illumina and Grail file a claim for damages suffered as a result of the European regulator’s overreach.

Second, as the EC had accepted the referral of other concentrations in circumstances similar to those of Illumina and Grail on the basis of its new interpretation of article 22 EUMR (e.g., Autotalks and Qualcomm, and Nasdaq Power and EEX), these decisions are incompatible with the doctrine that the CJEU has established in its judgment, so it is also likely that the EC revoke these decisions as well.

Third, but not less important, there are several possible scenarios in relation to the future actions of the EC and the national competition authorities in dealing with situations such as those arising from the Illumina/Grail transaction or killer acquisitions. On the one hand, the EC has already announced that, if the CJEU finally rejected its interpretation of article 22 CR, as it has done, it would explore the possibility of applying the abuse-of-a-dominant-position rules (article 102 Treaty on the Functioning of the European Union) to review below-threshold transactions which, in the EC’s opinion, are potentially harmful to competition in the internal market. The CJEU has already confirmed this possibility with regard to national competition authorities in the recent Towercast case (C-449/21). However, it is not clear whether this option would apply to the EC itself, and in any case, it would only apply to concentrations where at least one of the parties has a dominant position.

On the other hand, the EC’s commissioner for competition and executive vice-president, Margrethe Vestager, has highlighted that several EU Member States (Denmark, Italy, Latvia and Sweden), through their merger control regulations, have the power to "call-in" mergers that do not meet their national thresholds. This enables Member States to continue referring transactions to the EC via article 22 EUMR without breaching the CJEU’s doctrine in the Illumina case. This is because the referring Member State would be competent under its own merger control regime. According to the commissioner’s public statements on this subject (available here), this is one of the most plausible options, and it cannot be ruled out that the CJEU’s judgment could lead to the establishment of similar criteria in the national regulations of other Member States.

A final implication is the possibility of revising the EUMR to approve new thresholds or modify existing ones, following the path already taken by countries such as Austria and Germany at a national level. However, this option does not appear to be an "optimal solution," according to the commissioner.

In any case, it seems that the EC’s battle to step in and act against killer acquisitions has only just started.