In a judgment dated 13 July 2022 (T-227/21), the General Court of the European Union (the “General Court” or the “Court”) upheld the decision of the European Commission (the “Commission”) whereby the latter accepted to assert its (merger control) jurisdiction over the “below-the-thresholds” acquisition of Grail by Illumina (the “Transaction”), following referrals from EU and EFTA member states based on Article 22 of the EU Merger Regulation (“EUMR”)[1].
In addition to its direct and almost immediate implications for Illumina and Grail (see below), this judgment paves the way for new cases that capture concentrations below the thresholds (i.e., not triggering merger control requirements based on the numerical thresholds) while leaving a few questions open.
It was indeed the first time, since the announcement by Margrethe Vestager of the Commission’s willingness to use Article 22 EUMR to tackle potentially problematic “below the thresholds” mergers, that the General Court was given the opportunity to have its say on this new approach.
Background
Pursuant to Article 22 EUMR, national competition authorities (“NCAs”) may refer to the Commission any concentration that does not have a European dimension, but (i) which affects trade between Member States and (ii) threatens to significantly affect competition in the territory of the Member State concerned (see our previous Blog post on the Commission’s guidance published on 26 March 2021).
This provision was long conceived as a tool designed for EU Member States lacking national merger control regimes. Over recent years, however, there had been increasingly clear messages that the Commission wanted to use it for other purposes, namely to extend its jurisdiction to catch the so-called killer acquisitions, or more generally potentially problematic concentrations below the thresholds. But, before the issuance of the Commission’s guidance regarding the application of Article 22 EUMR on 26 March 2021, the rules of the game were not clear at all.
Made public in September 2020, before the release of the aforementioned guidance, the Illumina/Grail Transaction was not notified to any NCAs within the EU or to the Commission, as it did not cross any relevant thresholds. However, a complainant, as well as the Commission, has considered it a textbook case of a “killer acquisition.”
In this case, Grail is a start-up, not yet generating any turnover, developing innovative blood-based cancer tests based on genomic sequencing and data science tools. Reportedly, the alleged concern would be that the purchaser, Illumina, a U.S. major biotechnology company supplying sequencing and array-based solutions for genetic and genomic analysis, could post-transaction restrict access to or increase prices of next generation sequencers and reagents to the detriment of Grail’s rivals active in genomic cancer tests.
Likely informed of the Transaction by the complaint, the Commission reached the preliminary conclusion that the Transaction satisfied the necessary conditions for a referral. In accordance with Article 22(5) EUMR, the Commission informed the EU and EFTA Member States of the Transaction and invited them to request a referral (through a so-called “Invitation Letter”), and on 9 March 2021, the French competition authority sent a request (joined by the Dutch, Belgian, Norwegian, and Icelandic competition authorities). By decisions of 19 April 2021, the Commission accepted the referral request and associated requests to join (the “Decisions”).
Subsequently, Illumina, supported by Grail, initiated an action for annulment against both the Invitation Letter and the Decisions before the General Court of the EU, competent to rule on such annulments for acts of the institutions of the European Union that are contrary to European Union law.
The judgment at hand was much awaited as, by contrast with traditional guidelines which build upon a long decisional practice, the Commission’s guidance develops a new untested approach to Article 22 EUMR and has generated much debate amongst academics and practitioners about its legality.
Findings of the General Court
First ruling on the admissibility of the case, the General Court confirmed that the Commission’s Decisions constituted challengeable acts within the meaning of Article 263 of the Treaty on the Functioning of the European Union (“TFEU”), notably as each were considered to produce binding legal effects vis-à-vis Illumina and were thus capable of affecting its interests by bringing about a distinct change in its legal situation.
The Court thus rejected the European Commission’s position that its Decisions were merely preparatory acts, the illegalities of which could be raised in an action brought against the final decision on the concentration at issue. On the contrary, the Invitation Letter was considered to constitute only an intermediate step in the context of the referral procedure so that the Court held Illumina’s action against such letter to be inadmissible.
On the substance of the case, Illumina challenged the Commission’s Decisions on three points, essentially alleging: 1) a lack of competence on the part of the Commission, 2) that the referral request of France was late and 3) that the Decisions violated the principle of protection of legitimate expectations.
1° Article 22 EUMR is an adequate legal basis for the Commission to exercise its jurisdiction over the Transaction
Illumina argued that the Commission did not have a valid legal basis to review the transaction at issue, since the referral request was made by a competition authority which was not itself competent, under its own national legislation, to review the transaction. For Illumina, the residual purpose of Article 22 EUMR only enables a Member State that does not have a merger control legislation to submit a referral request in order to prevent a concentration affecting its territory from not being subject to any scrutiny.
Following a holistic review, through a literal, contextual, teleological and historical interpretation of the provision at issue, the Court concluded that the Commission was right to accept the referral request and the requests to join under Article 22 EUMR, thus confirming with a particular strength, the validity of this recent and major change in the Commission’s merger control policy.
Relying on the wording of Article 22(1) EUMR, and in particular the use of the expression “any concentration,” the Court took the view that a concentration could be the subject of a referral, regardless of the existence or scope of national merger control rule. Interpreting Article 22(1) EUMR otherwise, as Illumina and Grail advocated, would in fact add a condition for a referral that is not apparent from its wording, the Court added.
It also considered that although the referral mechanism was originally conceived, under the previous merger regulation 4064/89, primarily for Member States which did not have their own merger control system (in practice, the Kingdom of the Netherlands), it did not, however, preclude other Member States from also having recourse to that mechanism. For the Court, nothing in that regulation indicates that the EU legislature intended at the time to reserve that mechanism for those aforementioned States.
For the Court, while the scope of the EUMR depends primarily on the exceeding of the turnover thresholds defining the European dimension, it also depends, alternatively, on the referral mechanisms provided for in Article 4(5) and Article 22 of that regulation, which supplement those thresholds by authorising the examination, by the Commission, of certain concentrations that do not have such a European dimension. It further emphasized the distinction that was operated between the referral mechanism set forth under Article 4(5) EUMR, the “one-stop shop” threshold, which specifically requires 3 Member States having competence to review a transaction for it to be referred to the Commission, and the referral mechanism of Article 22, which does not provide such a condition.
Eventually, the Court found that referral mechanisms are an instrument necessary to remedy the control gaps inherent to a rigid system solely based on turnover thresholds. It considered that the use of the expression “effective corrective mechanism” in recital 11 of the EUMR, to describe referrals, shows that such mechanisms create a subsidiary power of the Commission which confers on it the flexibility necessary to achieve the objective of the regulation, namely, to allow for the control of concentrations that are likely to significantly impede effective competition in the internal market.
Accordingly, the General Court concluded that the Commission was right to accept the referral request at issue and that neither a legislative amendment nor a revision of the EU thresholds were necessary, contrary to what Illumina claimed.
2° The Transaction was lawfully referred to the Commission as the referral request was not late
Beyond the much-anticipated conclusion on the overall lawfulness of the referral request made by a non-competent NCA, the General Court’s judgment also provides clarifications as regards the deadline to be complied with by Member States to submit such a referral request, which, if helpful, still leaves open a number of questions.
As a reminder, the second subparagraph of Article 22(1) EUMR provides that a referral request “shall be made at most within 15 working days of the date on which the concentration was notified, or if no notification is required, otherwise made known to the Member State concerned.”
Illumina, supported by Grail, argued that the referral request was submitted after the expiry of the time limit, since the Transaction was announced publicly through a press release and the CMA and the FTC had already started investigating the deal, which therefore was necessarily known to the French NCA.
The General Court rejected the argument and held that the concept of a concentration being “made known” within the meaning of the second subparagraph of Article 22(1) EUMR must, as regards its form, consist of the active transmission of relevant information to the Member State concerned and, as regards its content, contain sufficient information to enable that Member State to carry out a preliminary assessment.
According to that interpretation, the Court followed, the period of 15 working days laid down in that provision starts to run from the time when that information was transmitted, and in the present case, the information was transmitted through the Invitation Letter sent by the Commission, which eventually enabled the NCAs concerned to carry out a preliminary assessment of the required conditions. In consequence, the Court found that the referral request at issue was made on time since it was rightly made within 15 working days from receipt of the Invitation Letter.
The Court did note, however, that the Invitation Letter itself was sent within an unreasonable period of time as a period of 47 working days elapsed between receipt of the original complaint by the Commission and the sending of the Invitation Letter to the NCAs, a delay which the Court found to be unjustified. Nevertheless, the Court ruled that such an infringement of the reasonable time principle could not in the present situation justify the annulment of the Commission’s Decisions as it did not adversely affect the ability of Illumina or Grail to defend themselves effectively, such adverse effect being the legal standard to call into question the validity of an administrative procedure.
3° The recent shift in the Commission’s approach towards Article 22 EUMR does not violate the principle of protection of legitimate expectation
Finally, Illumina argued that the recent shift in the commission’s guidance on Article 22 violated its legitimate expectations since, at the time it agreed on the concentration with Grail, the Commission did not accept referral requests for concentrations that did not fall within the scope of national merger control rules. To that end, it pointed out to a specific speech made by Margrethe Vestager in September 2020 in which she confirmed that, at the time, the Commission was discouraging Member States to make use of such referral requests and that a change of approach would take place in the future. Illumina and Grail emphasized the clear and unconditional nature of that speech, as regards the process and timing of the implementation of the new referral policy. They also reminded that the Commission’s guidance on the application of the referral mechanism of Article 22 was adopted after the Invitation Letter was sent, without public consultation.
However, the Court dismissed such argumentation, reminding that a party’s right to rely on the principle of the protection of legitimate expectations presupposes the fulfilment of certain conditions set by the case law, notably that “precise, unconditional and consistent assurances originating from authorised, reliable sources have been given to the person concerned by the competent authorities of the European Union” and “has led him or her to entertain well-founded expectations.” In the present case, the Court held that Illumina failed to demonstrate the existence of such assurances. In particular, with regard to Margrethe Vestager’s speech that Illumina relied upon, the Court found that the Vice-President of the Commission simply stated in her general policy speech that it was time to change that past practice but did not make any commentary on the transaction. And since the speech occurred months before the transaction was even publicly announced, that speech could not contain precise, unconditional and consistent assurances in relation to the treatment of that specific concentration.
Furthermore, the Court noted that the fact that the Commission has a practice of discouraging NCAs from referring cases to it that they do not have the power to review themselves does not, in itself, precluded such referrals.
The Court added that because the contested Decisions were based on a correct interpretation of the scope of Article 22 EUMR (as developed supra in section 1°), Illumina could not rely on the reorientation of the Commission’s decision-making practice to claim any violation of the principle of legitimate expectation.
The General Court thus concluded by dismissing Illumina’s action in its entirety.
Conclusion
Given the novelty of the Article 22 doctrine and the absence of guidance thereof at the time of the contemplated Transaction, this is arguably a particularly harsh ruling against Illumina, with serious consequences. The Commission, which had temporarily halted its in-depth probe into the Transaction last February while waiting for the General Court’s ruling, may now resume its work. As for now, Illumina and Grail remain subject to the interim measures imposed by the Commission in October 2021 requiring, in particular, that Grail be kept separate, be run by independent managers and that the parties implement Chinese walls in order to avoid sharing confidential and strategic information. In parallel of the in-depth review and the interim measures, the Commission, just six days after the judgment, sent a statement of objections to Illumina alleging unlawful gun-jumping (i.e., violation of the standstill obligation). The latter had indeed publicly announced that it had completed its acquisition of Grail while the Commission’s in-depth investigation was still ongoing. What’s next? Illumina made public its intention to appeal the judgment almost immediately after its issuance. It may hence not be the end of the story.
About the impact of the ruling beyond the Illumina/Grail transaction, it vigorously reinforces the Commission’s expansion of jurisdiction over mergers below the thresholds and confirms the need, for companies, whatever the activities concerned, to adapt to this new legal framework and take into account the clear uncertainty that derives from a potential Article 22 referral.
This is even truer as Margrethe Vestager, commenting upon the judgment, declared “We have a few acquisitions within our sights that might be relevant candidates.” So, there are clearly more cases to come.
In this context, our recommendations made a few months back (see here) remain all the more relevant after this confirmation’s judgment.
Finally, one can only hope that in the future the Commission and the NCAs will use this new Article 22 approach sparingly, focusing on the highest risks’ cases.
[1] Article 22 EUMR provides that « one or more Member States may request the Commission to examine any concentration as defined in Article 3 that does not have a Community dimension within the meaning of Article 1 but affects trade between Member States and threatens to significantly affect competition within the territory of the Member State or States making the request. »
