April 3, 2024

Article 22 EUMR is still up in the air: Advocate General’s opinion in the Illumina/Grail saga

On March 21, 2024, Advocate General Nicholas Emiliou advised setting aside the General Court’s judgment and annulling the decision of the European Commission (the “Commission”) to accept the request from certain Member States to review the transaction under Article 22 of the EU Merger Regulation (the “EUMR”).[1]

Article 22 of the EUMR was originally conceived to allow Member States that did not have national merger control regimes to make referrals to the Commission regarding concentrations that did not meet EUMR thresholds. Following introduction of merger control regimes in all Member States, the Commission discouraged application of Article 22 to refer transactions that did not exceed the referring Member State’s merger control threshold (although its wording does not expressly require that such a threshold be crossed).

However, in an attempt to pursue what are commonly known as “killer acquisitions” in the digital and pharmaceutical sectors that fell below both EU and national turnover thresholds, in 2021 the Commission decided to revive its policy and published new guidance[2] specifying that Article 22 could also be applied to transactions that are below national thresholds, if they are potentially harmful to competition, especially in markets where investments in innovation play a crucial role.

This new interpretation of Article 22 was first applied to the announced acquisition of Grail (a U.S.-based startup in the early cancer detection test market) by Illumina (a global leader in next-generation sequencing).[3]

The Advocate General believes the General Court erred in its interpretation of Article 22 of the EUMR, leading to an unwarranted expansion of the Commission’s jurisdiction, which would grant it the power to analyze virtually any merger, even after completion. This would result in an inefficient and unpredictable procedure that would impose a lack of legal certainty for the parties involved and thus be contrary to EU law.

Brief overview of the case

Back in February 2021, the Commission sent a letter informing Member States of Illumina’s merger with Grail and setting out the reasons why the merger seemed to meet the conditions for referral under Article 22.

Jurisdiction challenge

Following the Member States’ referral request, in April 2021 the Commission accepted jurisdiction and in July 2021 it opened an in-depth investigation.

Illumina and Grail immediately appealed the decision before the General Court, arguing that the Commission lacked jurisdiction to review a foreign-to-foreign transaction involving two U.S. companies, one of which did not have any turnover in the European Union.

The General Court dismissed the action,[4] stating that Article 22 is a “corrective mechanism” that ensures the necessary flexibility for effective merger control and permits the Commission to review non-notifiable transactions under Member States’ national rules. Illumina and Grail appealed the decision before the Court of Justice of the European Union. In the appeal proceedings, the Advocate General issued the conclusions under discussion.

Gun-jumping and interim measures

While the Commission’s investigation was still pending, in August 2021 Illumina completed the merger with Grail. The case represented the first (and only) time that merging parties intentionally completed a transaction during an ongoing Commission merger review.

Therefore, the Commission opened a gun-jumping investigation, which resulted in a fine of EUR 432 million for Illumina for early completion of the acquisition and a symbolic EUR 1,000 fine for Grail. This was also the first gun-jumping fine ever issued to a target company.

The appeal of the fine is currently pending before the General Court.[5] The Commission also imposed interim measures to restore and maintain conditions of effective competition during review of the transaction. Illumina and Grail challenged the interim decision as well.[6]

The prohibition

On September 6, 2022, with the in-depth investigation complete, the Commission prohibited Illumina from acquiring Grail.[7]

This was a landmark decision, marking the Commission’s s first prohibition based solely on vertical concerns and the first time it blocked a below-threshold merger. Consistent with the above, the Commission ordered Illumina to unwind the acquisition of Grail to restore it to pre-transaction status.[8]

The unwinding process is currently underway and is scheduled to be completed by the end of the second quarter of 2024.

Advocate General’s conclusion

As anticipated, Illumina and Grail appealed the General Court’s judgment regarding the legality of the Commission’s acceptance of the referral, seeking its annulment. On March 21, 2024, Advocate General Emiliou delivered his opinion in the pending case.

The Advocate General scrutinized the General Court’s interpretation of Article 22, analyzing its broad scope and potential ramifications. He raised concerns about significant expansion of the Commission’s authority that could result from the General Court’s interpretation, warning of potential jurisdictional overreach arising from the Commission’s authority to review nearly any merger globally, regardless of the turnover, location, value, or timing. That would essentially make European merger control devoid of predictability and legal certainty.

On the other hand, the Advocate General seemed to appreciate the Commission’s concerns regarding the limits of the turnover thresholds as a measure of companies’ roles in the market. To this end, he suggested that rather than pushing the boundaries of existing law, the European legislature should reconsider the overall legal framework.

The analysis highlighted the complexity of EU merger regulations and the challenges in achieving clarity and coherence in their application. Ultimately, the Advocate General recommended annulling the decisions challenged before the General Court and advocated for a more nuanced interpretation of Article 22.

Outlook

The advocate general’s opinion is not binding, and the final decision rests with the Court of Justice of the European Union.

Statistically speaking, the court follows the advocate general’s opinions in 70 to 80% of cases. The final decision is expected by the end of the year.

Should the court align with Advocate General Emiliou’s opinion, it would be a bittersweet victory for Illumina.

Based on the expected timeframe, by the time the decision is delivered, divestment from Grail may already be complete. On the other hand, a successful outcome for Illumina on the matter of jurisdiction would nullify the grounds for the gun-jumping fine that Illumina appealed, as well as the prohibition decision and divestment order. Moreover, such a decision might pave the way for Illumina to seek damages from the European Commission, while also affecting the outcome of other pending Article 22 cases.

This case strikes at the core of the Commission’s strategy for detecting and controlling what are commonly known as “killer acquisitions.” If the Court of Justice of the European Union embraces the Advocate General’s findings, the ruling could potentially overturn the Commission practice outlined in the Commission’s March 26, 2021 guidance to assess mergers falling below the established thresholds via Article 22.

The Advocate General’s conclusion seems to validate the commonly held theory that the Commission has improperly used a soft law act to avoid the lengthy and burdensome legislative procedure required to amend Article 22 to allow examination of potentially problematic transactions that do not otherwise meet the thresholds of European legislation.

The European Commission will be holding its breath, and merging parties should continue to take a conservative approach when negotiating deals until a final decision is issued.
 


 
[1] Regulation (EC) No. 139 of January 20, 2004.

[2] Communication from the Commission – Guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to certain categories of cases, in OJ C11 of March 31, 2021.

[3] Read our previous article for more background on this decision.

[4] Judgment of July 13, 2022, Illumina v Commission, T-227/21.

[5] T-591/23.

[6] T-755/21.

[7] Commission’s decision of September 6, 2023, appealed by Illumina in T-709/22.

[8] Commission’s decision of October 12, 2023, appealed by Illumina in T-1190/23.

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