The GC confirms Commission’s extended merger control powers

The General Court allows the Commission to review any merger that may entail a significant risk for competition, whether it has a European dimension or not.

Background

On March 31, the European Commission (Commission) published its Communication on merger referral (Communication). Its main novelty is a broad interpretation of post-notification referrals by Member States to the Commission (article 22 of Regulation 139/2004 on the control of concentrations between undertakings or Merger Regulation).

The Commission relaxes the criterion by which Member States may refer concentrations which, despite falling below the Merger Regulation notification thresholds and not being notifiable in any Member State, affect trade between Member States and threaten to significantly affect competition within their territory. Prior to the Communication, the Commission used to reject referral requests concerning transactions that did not meet national notification thresholds.

Member States referred two transactions to the Commission in the Communication’s first month of implementation, showing the States’ support for the Commission’s new interpretation: Facebook’s acquisition of Kustomer, a company dedicated to customer behavior analysis; and Illumina’s acquisition of GRAIL, a company specializing in the development and marketing of sequencing-based cancer detection tests. The Commission accepted both referral requests.

Given GRAIL’s limited turnover in the EU, the Illumina/GRAIL merger did not exceed the European notification thresholds nor those of any Member State.

In December 2020, the Commission received a complaint regarding this transaction. After assessing its potential impact on Europe, the Commission sent a letter to the Member States inviting them to make a referral under article 22 of the Merger Regulation. The French competition authority submitted a referral request, which was later joined by Greece, Belgium, Iceland, the Netherlands and Norway. The Commission accepted the referral requests by decisions of April 19, 2021, which Illumina challenged before the General Court of the EU (General Court).

Judgment of the General Court

In its judgment of July 13, 2022 (T-227/21), the General Court dismissed the applicant’s claim in full.

First, the General Court upheld the Commission’s interpretation of article 22 of the Merger Regulation to assert its own jurisdiction. The expression “any concentration” clearly established the Commission’s jurisdiction to review all types of concentrations regardless of the existence or scope of national merger control rules.

The Merger Regulation seeks to permit effective control of all concentrations with significant effects on competition. Article 22 thus serves as a corrective mechanism for those concentrations which, despite not having a European dimension, may significantly affect the internal market. Based on this reasoning, the General Court concluded that the Commission was competent to examine this concentration under the referral mechanism.

Secondly, the General Court rejected Illumina’s arguments regarding the principles of conferral of competences, subsidiarity, proportionality and legal certainty. With respect to the latter, the General Court considered that the only valid interpretation regarding the application of article 22 is precisely the one put forward by the Commission in its Communication.

Finally, the General Court also rejected the alleged violation of the principle of legitimate expectations. The General Court noted that to rely on this principle, the person concerned must have received precise, unconditional and consistent assurances from authorized and reliable sources—giving rise to well-founded expectations. According to the General Court, the applicant failed to provide sufficient evidence in this regard.

The General Court also shed light on another question of great interest: the triggering of the time limit for Member States to submit referral requests to the Commission. According to the General Court, this period starts upon an active transmission of information enabling the State to assess whether the conditions for referral are met. Thus, the General Court ruled that the States’ referral request in the present transaction had been submitted within the time limit.

In this regard, the General Court reminded the Commission of its obligation to act within a reasonable time in conducting administrative proceedings—and in particular when it comes to merger control. In the Illumina case, the period of 47 days between the receipt of the complaint and the sending of the invitation letter to the States was considered unreasonable. However, since Illumina did not sufficiently demonstrate that the Commission’s failure to comply had affected its ability to defend itself effectively, there are no grounds to annul the contested decisions.

Next steps

Pending the already announced appeal by Illumina before the Court of Justice of the European Union (CJEU), the judgment of the General Court endorses the full exercise of the powers attributed to the Commission by the abovementioned Communication. It also encourages Member States to refer concentrations which, despite falling below the European or national thresholds, may significantly affect competition in the internal market.

Through this mechanism, it is expected that the Commission will increase its review of non-notifiable concentrations with the potential to affect competition in the internal market. However, the CJEU will have the final say.