On September 3, 2024, the European Union’s Court of Justice (ECJ) issued its highly anticipated judgment in the Illumina/Grail case (C-611/22 P and C-625/22 P) concerning the European Commission’s (EC’s) power to review transactions based on a referral by national competition authorities in the EU pursuant to Article 22 of the EU Merger Regulation (EUMR). The EC’s review of the Illumina/Grail transaction was based on referrals from member states where the transaction did not meet the applicable notification threshold, pursuant to guidance issued by the EC that it would accept such referrals to be able to review ‘killer acquisitions’, typically involving smaller revenue targets. The ECJ held that the EC had no power to review a transaction referred to it by several EU member states under Article 22 EUMR if none of the member states have jurisdiction to review under their own national merger control regimes.

Key Takeaways

• The EC cannot review a transaction if the member state making the referral request has national merger control rules but its national thresholds are not met.
• The EC’s policy was perceived to have an adverse impact on deal certainty, since it was unclear in which cases the EC would seek to review a transaction and because the Article 22 referral regime lacked clear time limits. For parties to actual or potential transactions, the judgment supports deal certainty as it circumscribes the EC’s powers to review below-threshold transactions.
• The judgment is a setback for the EC’s March 2021 policy of seeking to review below-threshold mergers. The ability to ‘call in’ below-threshold transactions on a quasi-discretionary basis had been an important part of the EC’s digital enforcement agenda. For example, the EC wanted to rely on early notice by large tech companies (designated gatekeepers) of their transactions under Article 14 Digital Markets Act (DMA) in order to be able to consider an Article 22 EUMR referral.
• The EC has responded to the judgment by saying that changes to national merger regimes (and potential future changes) expanding their ability to call in below-threshold transactions will enable referrals in a manner that complies with the judgment.

Background

Illumina, a DNA sequencing company, founded Grail in 2015. Grail is a biotechnology company that uses DNA sequencing to develop multicancer early detection tests (MCEDs). In 2017, Illumina spun off Grail but kept a 12% equity stake. On September 8, 2020, Illumina entered into an agreement to reacquire Grail for $8 billion with the goal of bringing Grail’s now developed MCED test to market.

The transaction was not notifiable in the EU. It fell below merger notification thresholds at EU and national levels, given that Grail did not realize any revenues in the EU.

However, after receiving a complaint from the French Competition Authority over the transaction, the EC sent a letter to the EU member states inviting them to submit a referral request under Article 22 of the EUMR.

The French Competition Authority made a referral request in March 2021, followed by the competition authorities of Belgium, Greece, Iceland, the Netherlands and EEA member state Norway. In April 2021, the EC accepted the referral requests. The EC took the view that the high transaction value and potential threat to competition warranted review under Article 22 EUMR. The EC blocked the deal in September 2022 and imposed a fine on Illumina and Grail in July 2023 of €432 million for implementing the transaction pending EC review. In October 2023, the EC ordered Illumina to unwind its acquisition of Grail.

Illumina appealed the EC’s decision to review the transaction, arguing that the EC lacked the authority under Article 22 EUMR to claim jurisdiction over the deal.

On July 13, 2022, the (lower-tier) General Court upheld the EC’s decision and confirmed the EC’s interpretation of Article 22 allowing the agency to review mergers even if they do not meet any national thresholds.

The ECJ Judgment

On September 3, 2024, the ECJ ruled, in line with the opinion of Advocate General Nicholas Emiliou, that the EC had no jurisdiction to accept referrals from national authorities to review transactions lacking European dimension and falling outside national thresholds.¹

The ECJ found that the General Court erred in establishing that Article 22 EUMR provides for a ‘corrective mechanism’ to ‘remedy alleged deficiencies stemming from the rigidity of the thresholds’ for concentrations impacting competition in the EU.²

The ECJ indicated that this ‘interpretation undermines the effectiveness, predictability and legal certainty that must be guaranteed to the parties to a concentration’ and made the point that thresholds in merger control ‘are of cardinal importance’ in order for undertakings to ‘be able easily to determine whether their proposed transaction must be the subject of a preliminary examination and, if so, by which authority, and when a decision of that authority relating to that deal may be expected’.³

What’s Next

The ECJ suggested three alternatives for addressing any perceived deficiencies of the current merger control framework:

• Ex post control based on the EC’s ability to block a dominant company from abusing its dominant position, notably under the Towercast jurisprudence, which enables EU member states to challenge transactions post-closing by alleging abuse of dominance under Article 102 TFEU;
• Revision of the EUMR by the EU legislature; or
• Revision of national merger control thresholds by member states.⁴

For now, the EC has indicated that the third alternative is its immediate fix. Following the landmark judgment, Commissioner Margrethe Vestager welcomed referrals and highlighted how ‘in the last few years, several Member States have introduced provisions allowing them to request the notification of transactions that do not meet national thresholds’.

Competition authorities in Cyprus, Ireland, Lithuania and Slovenia have the competence to call in transactions capable of impacting national competition. Other EU member states have lower or flexible thresholds that may support jurisdiction in a broader array of circumstances. It remains to be seen to what extent member states will refer transactions to the EC, however, and how absent mandatory notifications, member state competition authorities will deploy their call-in powers.

The Illumina/Grail judgment also has an impact on one of Commissioner Vestager’s other major initiatives, the Digital Markets Act (DMA). Under Article 14 of the DMA, designated ‘gatekeepers’ are required to notify the EC about any intended acquisitions involving digital services irrespective of whether they are reviewable. Now that EC is no longer able to review below-threshold transactions, the Illumina/Grail judgment may have largely removed the sting from this obligation.

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1 Joined Cases C-611/22 P and C-625/22 P, Illumina v Commission, para. 218.

2 Joined Cases C-611/22 P and C-625/22 P, Illumina v Commission, para. 149.

3 Joined Cases C-611/22 P and C-625/22 P, Illumina v Commission, paras. 206 and 208.

4 Joined Cases C-611/22 P and C-625/22 P, Illumina v Commission, paras. 214, 216 and 217.

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