• Applying its recent re-interpretation of Article 22 of the European Union Merger Regulation (“EUMR”), which enables Member States to refer to the European Commission (the “Commission”) transactions that do not reach either EU or national merger control thresholds, the Commission reviewed and prohibited in 2023 the acquisition by genomic sequencing company Illumina of biotech GRAIL. Following an appeal brought by the parties, the General Court of the European Union (the “General Court”) upheld the Commission’s new approach to Article 22 EUMR.
• In the context of the further appeal before the European Court of Justice (“ECJ”), however, Advocate General Emiliou has issued an Opinion criticizing the position of the Commission and the General Court. In the Advocate General’s view, the Commission’s new interpretation of Article 22 EUMR is not in line with the European legislator’s intent.
• The ECJ is not bound by the Advocate General’s Opinion. Its ruling is expected by the end of the year and should provide a definitive answer as to the powers of the Commission in this context. If it decides to follow AG Emiliou’s approach, this could mark the end of the Commission’s ability to review deals falling outside of the scope of the EUMR and counterpart national rules. In that case, fresh legislation would be required in order to extend the EUMR to smaller transactions considered to have a strongly adverse effect on competition. In the meantime, the Commission’s appetite for new Article 22 referrals remains to be seen.

In 2021 the Commission adopted a new interpretation of Article 22 EUMR, by which the Member States may refer for review by the Commission transactions that do not meet either the EU thresholds or the national notification thresholds of the referring Member State.¹ The rationale for the new interpretation was to allow the Commission to review so-called “killer acquisitions” (e.g. acquisitions of a company with an innovative project that is still at an early stage of development, in order to eliminate it as a possible source of future competition).

Since then, the Commission has accepted four referrals,² with one of them being accepted as recently as March.

Illumina/GRAIL: applying the new Article 22 guidelines for the first time.

On the basis of this new approach, and indeed even prior to its formal adoption, the Commission accepted a referral from France, joined by Belgium, Greece, Iceland, the Netherlands and Norway, to review the now famous acquisition of GRAIL by Illumina. Start-up GRAIL did not have sales in the EU at the time and as such did not meet any jurisdictional thresholds at the national or EU level.

The Commission prohibited the transaction in September 2022.³ Despite the standstill obligation arising from the Commission’s assertion of jurisdiction, Illumina had already closed the deal, which led to a fine of EUR 432 million, and a divestment order issued by the Commission.⁴ If though the original assertion of jurisdiction was invalid, all of those decisions would necessarily fall away.

General Court upholds the Commission’s interpretation.

Both Illumina and GRAIL challenged the Commission’s assertion of jurisdiction before the General Court. Additionally appeals were filed against the prohibition, gun-jumping and divestment orders.

The General Court dismissed the appeal on jurisdiction, finding that the Commission correctly interpreted Article 22 EUMR when it decided to accept the referral, even though the transaction did not fall under the national merger control rules of the referring Member States.⁵ The General Court ruled that, based on a literal, historical, contextual and teleological interpretation of Article 22, that provision should be viewed as instrument intended to remedy the deficiencies inherent in a merger control system based mainly on turnover thresholds which, because of its rigid nature, may not cover all concentrations that require examination at the European level. The General Court thus confirmed that Article 22 should give the Commission the flexibility necessary to achieve the objectives of the EUMR, i.e., reviewing any concentration likely to significantly impede effective competition in the internal market.

Advocate General opposes Commission’s interpretation.

The parties have appealed the General Court’s judgement and, while the ECJ ruling is still some months ahead, the Opinion issued by Advocate General Emiliou on 21 March 2024 is highly critical of the General Court’s reasoning, denying the Commission’s jurisdiction to examine the Illumina/GRAIL transaction – or any transaction not captured either by the EU or national merger control thresholds.

Based on a careful examination of (i) the wording of Article 22 EUMR, (ii) the origin, context and purpose of the provision, (iii) the overall logic of EU merger control as well as (iv) the fundamental principles of EU law (institutional balance, subsidiarity, legal certainty and territoriality), the Advocate General concluded that the General Court’s interpretation of Article 22 EUMR is too broad and not in line with the EU legislature’s intention when adopting that provision.

The AG argues that this interpretation would give power to the Commission to review almost any transaction anywhere in the world, regardless of whether the businesses have revenues or presence in the European Union, and regardless of the value of the transaction, including after the deal has already closed.⁶ AG Emiliou took the view that such a broad interpretation of Article 22 EUMR would hardly be efficient, predictable and capable of ensuring legal certainty to the parties to a transaction,⁷ and that the possibility for the Commission to review deals ex-post under Article 102 TFEU (related to abuses of dominance) should be enough to preserve unrestrained competition in the internal market.⁸

According to the Advocate General, Article 22 EUMR should therefore not empower the Commission to accept a referral from Member States of deals which do not fall under their national merger control rules.

How will the ECJ rule?

While opinions of Advocates General are not binding on the ECJ, they are most often followed, especially when the AG disagrees with the position taken by the General Court. A 2016 quantitative study⁹ shows that the ECJ is 67% more likely to annul an act, or part of it, if recommended by an Advocate General than if the latter advises the ECJ to dismiss the case or declare it inadmissible.

The judgment of ECJ, if it endorses the interpretation of the Advocate General, may therefore mark the end of the review by the Commission of transactions falling outside the scope of EU and national merger control rules. In that case, primary legislation would be required to amend the EUMR in order to confer such power on the Commission.

The ECJ ruling could bring back some legal certainty to M&A deals in an era where powers of the Commission are ever growing, including following the ECJ Towercast judgement which, as noted by AG Emiliou, gives competition authorities power to review non-reportable deals under Article 102 TFEU.¹⁰

What of the other deals which have already been or could be referred to the Commission pending a decision by the ECJ?

In addition to the Illumina/GRAIL deal, the Commission has accepted three other referrals on the basis of its new interpretation of Article 22 EUMR. One of the three transactions referred to the Commission has already been abandoned by the parties.¹¹ Plainly, the Commission faces a dilemma in these cases, since their timetables are running, but the specter looms that the ECJ’s decision will completely undermine any action taken.

In the meantime, it must be likely that the Commission will hesitate before further invocation of Article 22, pending the decision of the ECJ. This will be an element in the reflection by companies whether to submit briefing papers to the Commission and any national authorities to pre-empt a review when they suspect their transaction might attract scrutiny on the basis of Article 22 EUMR. This strategy was followed in the €3.4 billion Eutelsat/Oneweb deal, where the parties obtained reassurance from the regulators that the deal would not be called in.¹²

Note: Dechert has advised Illumina, Inc. on the interpretation of Article 22 EUMR.

¹ See “European Commission repurposes powers to capture deals not meeting filing thresholds in the EU”, Dechert OnPoint, 31/03/2021. Accessible: https://www.dechert.com/knowledge/onpoint/2021/3/european-commission-repurposes-powers-to-capture-deals-not-meeti.html

² M. 10188 Illumina/GRAIL, M.11212 Qualcomm/Autotalks, M. 11241 EEX/Nasdaq Power and M.11485 Brasserie Nationale/Boissons Heintz

³ See “European Commission prohibits acquisition of Grail by Illumina”, Dechert OnPoint, 20/09/2022. Accessible: https://www.dechert.com/knowledge/onpoint/2022/9/european-commission-prohibits-acquisition-of-grail-by-illumina.html

⁴ In the US the FTC had already ordered Illumina to divest GRAIL in April 2023 (Illumina, Inc. /GRAIL, Inc., FTC Docket No. 9401 (Apr. 3, 2023))

⁵ See “Merging Parties Beware: Deals That Do Not Meet Merger Control Thresholds in the EEA Can Still Be Reviewed by European Commission”, Dechert OnPoint, 25/07/2022. Accessible: https://www.dechert.com/knowledge/onpoint/2022/7/merging-parties-beware--deals-that-do-not-meet-merger-control-th.html

⁶ Opinion of Advocate General Emiliou, delivered on 21 March 2024 in joined cases C-611/22P and C-625/22P, §216

⁷ Ibid., §§206-214.

⁸ Ibid., §§227-233.

⁹ C. Arrebola et al., An Econometric Analysis of the Influence of the Advocate General on the Court of Justice of the European Union, Cambridge Journal of International and Comparative Law, 2016

¹⁰ ECJ, 16 March 2023, Towercast, case C‑449/21

¹¹ M.11212 Qualcomm/Autotalks

¹² “Comment: Eutelsat-OneWeb merger shows dealmakers how to avoid EU ‘Article 22’ uncertainty”, Mlex, 23/10/2023. Accessible: https://content.mlex.com/#/content/1509853/comment-eutelsat-oneweb-merger-shows-dealmakers-how-to-avoid-eu-article-22-uncertainty?referrer=search_linkclick