In a landmark decision, the European Court of Justice (ECJ) has limited the European Commission’s (EC) ability to review mergers that fall outside thresholds at the EC level and in the Member States seeking to refer the review to the EC, emphasizing the need for clear jurisdictional boundaries. For now, the decision removes significant regulatory uncertainty, especially for transactions involving targets with little or no revenue in the EU but that may have emerging competitive significance as an innovator or otherwise.

The 3 September 2024 ECJ judgment held that the EC had exceeded its authority by asserting jurisdiction over the Illumina/Grail merger under Article 22 EU Merger Regulation (EUMR). The ECJ overturned the judgment of the General Court (GC) of 13 July 2022 and annulled the EC’s decision to accept requests from national European competition authorities that the EC review the proposed Illumina/Grail merger (see WilmerHale’s previous client alerts here and here for more background).

Under Article 22 EUMR, a Member State may request the EC to review a transaction (in EUMR parlance “a concentration”) that does not meet EU merger control thresholds but affects trade between Member States and threatens to significantly affect competition within the territory of the Member State(s) making the request. In a departure from past practice, the EC’s 2021 guidance on the application of Article 22 had sought to make referrals possible not only for transactions that meet the notification thresholds of the referring Member States. The ECJ held that the EC had overstepped its jurisdiction by attempting to review Illumina’s acquisition of Grail, which met neither the EU merger control thresholds nor the domestic thresholds for national merger control review in the referring Member States. The EC’s 2021 guidance sought to catch these types of transactions through a broad interpretation of Article 22 EUMR.

The judgment has important implications for parties to transactions. It removes the uncertainty caused by the EC’s attempt to widen Article 22 EUMR’s scope. More concretely, Illumina announced in December 2023 that it had abandoned its attempt to acquire Grail but, because of the judgment, it is no longer liable for the €432 million fine that had been imposed by the EC for gun jumping.

I. The ECJ’s Illumina/Grail Judgment

The EU merger review system differs from some other jurisdictions, including the United States and China, in that the merger filing thresholds are jurisdictional. That is, the EC (and most Member States) cannot review a merger when the applicable thresholds are not met. Most such thresholds are turnover-based. This led some to have concerns that acquisitions involving small companies with significant future competitive potential sometimes fell through the cracks of the merger review system. That issue came to a head in Illumina/Grail.

1. Act 1: EC Jurisdictional Claims are Supported by the GC

After receiving a complaint regarding the Illumina/Grail transaction, the EC invited Member States’ competition authorities to submit requests for the EC to examine the proposed deal. Five Member States submitted such a request, citing Article 22 as the applicable legal basis.

The EC’s decision to intervene was controversial and Illumina challenged the EC’s jurisdiction. The GC dismissed Illumina’s legal action. This judgment broadened the scope of Article 22 referrals and led potentially to scrutiny of transactions that otherwise would not have been reportable in the EU.¹These would include so-called killer acquisitions, where the buyer acquires a target with little or no turnover but significant future competitive potential.

Illumina and Grail each appealed the GC’s judgment.

2. Act 2: Key Takeaways from the ECJ’s Reversal

On 3 September, the ECJ annulled the GC’s judgment and, in turn, the EC’s decision to review the proposed Grail acquisition. The ECJ found that Article 22 EUMR did not allow national competition authorities to refer to the EC mergers that do not meet national thresholds for review. The ECJ accordingly ruled that the EC had overstepped its authority by attempting to review the merger.

In its press release, the ECJ stated that “The Commission is not authorised to encourage or accept referrals of proposed concentrations without a European dimension from national competition authorities where those authorities are not competent to examine those proposed concentrations under their own national law.” The judgment emphasizes that the EC’s overly-broad construction of Article 22 could undermine the legal certainty that companies need when planning mergers.

It is common ground that Article 22 allows a Member State that does not have its own system of merger control to request that the EC review a transaction/concentration that affects its territory despite it not meeting the thresholds for EUMR application. The question at issue in Illumina/Grail was whether a Member State may refer such a concentration to the EC despite the Member State having its own domestic merger control review system and the concentration not meeting the threshold for review under that national system.

The ECJ’s judgment turns on the interpretation of Article 22 and relies on the complete arsenal of interpretative tools offered by EU law:

• Literal Interpretation.

The GC and ECJ agreed that the text of Article 22 itself is inconclusive: Although a literal reading of Article 22 EUMR allows a Member State to refer to the EC “any concentration” that satisfies the conditions of referral under that Article, this still required determining what exactly these conditions were.

In this regard, the GC considered it appropriate to carry out a historical interpretation to determine the intent of the EU legislature when it enacted Article 22 EUMR.

• Historical Interpretation and Corrective Mechanism.

The ECJ found, that it was clear from the supporting documents and from the travaux préparatoires invoked by the GC, that the EU legislature had accepted that certain concentrations which could affect the internal market would nonetheless escape an ex-ante review by the EC under the EUMR because they failed to meet its thresholds. None of those documents envisaged the referral mechanism as a “corrective mechanism” that would allow referral of any concentration falling below the EUMR thresholds, irrespective of whether that concentration fell within the national merger control system of the Member State making the request.

• Contextual Interpretation.

The ECJ next concluded that all the factors that the GC had considered as part of its “contextual interpretation” were inconclusive.

By contrast, siding with the interpretation advocated by Illumina and Grail, the ECJ highlighted that the replacement of a national authority by the EC under Article 22 EUMR presupposes that the authority responsible domestically for the ex-ante control of concentrations has jurisdiction to review the referred concentration, in particular because the transaction meets the applicable national thresholds.

• Teleological Interpretation.

  The ECJ then analysed the GC’s “teleological” or purposive interpretation of the EUMR.

  • Corrective Mechanism. The ECJ rejected the GC’s assumption that Article 22 EUMR should be regarded as a “corrective mechanism” intended to remedy deficiencies in the merger control system, by enabling the scrutiny of transactions that do not meet either the EU or national thresholds.
  • Primary Objectives. The ECJ highlighted the two primary objectives of the referral mechanism under Article 22 EUMR. First, the mechanism was introduced to permit the scrutiny of concentrations that could distort competition locally, where the Member State in question did not have any national merger control rules. Second, the mechanism intended to extend the “one-stop shop” principle to enable the EC to examine concentrations notifiable in several Member States, thereby enhancing legal certainty and efficiency. In light of these two primary objectives, the ECJ repeated once more that the Article 22 EUMR mechanism was not intended to remedy deficiencies in the merger control system.
  • Legal Certainty. The ECJ focused on the goals of the EUMR. It emphasized the importance of an effective and predictable merger review system, taking into account the need for legal certainty (e.g., by limiting the duration of the review procedures or by determining jurisdiction by reference to turnover) and considering the benefits of the “one-stop shop” principle. The interpretation of Article 22 EUMR advocated by the EC and the GC would go against these core principles and undermine effectiveness, predictability and legal certainty.
  • Institutional Balance. The ECJ recalled that a broad interpretation of Article 22 EUMR clashes with the principle of institutional balance arising from Article 13(2) TEU, which requires that each of the EU institutions must exercise its powers with due regard for the powers of the other institutions. The ECJ refused to apply the principle of effectiveness to justify an expansion by the EC of its review powers: It pointed out that even if the EUMR thresholds determining competence based on turnover were to prove insufficient to enable review of some transactions capable of significantly affecting competition, it would then be for the EU legislature alone to amend the EUMR by introducing other thresholds or by providing for a safeguard mechanism enabling the EC to review such a transaction. The ECJ went further and stated that Member States are free to revise their own thresholds, as laid down by their national legislation.

The ECJ’s ruling also nullifies the €432 million fine imposed on Illumina by the EC for gun jumping, a financial penalty that had been another point of contention in the case. Indeed, all the subsequent decisions taken by the EC in the course of its investigation, including the fining decision, have been deprived of their legal basis by the ECJ’s judgment invalidating the EC decision to accept the requests to investigate the merger.

II. Implications of the Judgment for EU Merger Control

The ECJ’s judgment has several significant implications for EU Merger Control and the broader regulatory landscape.

• Limits on EC’s Authority. The judgment prohibits the EC from reviewing mergers that do not meet the revenue-based thresholds for EC or Member State review.

• Increased Legal Certainty. The ECJ’s judgment enhances legal certainty for companies engaging in mergers and acquisitions within the EU. There is no longer a possibility that a transaction that is not reportable at the EC or Member State level can be subject to EC review under the EUMR.

• Reassessment of Merger Control Strategies. The EC’s broader use of Article 22 EUMR had been seen as a tool to capture potentially anti-competitive mergers in fast-evolving sectors where companies might not yet meet traditional financial thresholds. Following the ECJ’s ruling, the EC may need to explore new legislative or regulatory frameworks to address these concerns, especially in cases where market power may not adequately be reflected by revenue figures alone.

Indeed, outgoing Executive Vice-President Margrete Vestager released a statement only minutes after the publication of the ECJ’s judgment. She highlighted that there continues to be a need to review mergers that have a competitive impact in Europe regardless of their size. She referred to “killer acquisitions” and companies with limited turnover which may still play a significant competitive role on the market, as a start-up with significant potential, or as an important innovator.

Vestager also observed that the EC will continue to accept referrals made under Article 22 EUMR by Member States that do have jurisdiction over a concentration under their national rules where the applicable legal requirements are met. She referred to several Member States having introduced provisions allowing them to request the notification of transactions that do not meet national thresholds, in situations where they might have a significant competitive impact. This development could mean that there is no need to revise the EUMR because many Member States will have jurisdiction to review mergers that do not meet turnover-based thresholds, and the EC therefore can accept referrals of such mergers. However, it should be noted that certain Member States such as Germany and Austria, which have amended their national rules to include transaction value-based thresholds to catch more deals falling below turnover thresholds, have indicated that they were not generally inclined to refer such transactions to the EC under Article 22 EUMR.

More interesting therefore is the reaction by France’s competition authority,² which announced mere hours after the publication of the ECJ’s judgment that it will pursue mergers that harm competition in France with all tools available to it, including antitrust laws and that it would consider revisiting its own jurisdictional thresholds (although this would require a legislative amendment). This is in line with the judgment itself where the ECJ explicitly stated that Member States could always revise their own thresholds.

• Potential Review of Non-Notifiable Mergers on Abuse of Dominance Grounds. The ECJ, in its Towercast judgment of 16 March 2023, ruled that national competition authorities and courts could review acquisitions by dominant entities under abuse of dominance rules, even if the acquisition is not notifiable under EU or national merger control laws. Following Illumina/Grail, we may see more merger reviews on this basis.This could therefore mark a return to using abuse of dominance rules to tackle below-threshold killer acquisitions, albeit ex-post.

• Future Mergers in High-Growth Sectors. Both the Towercast judgment and the GC’s decision in Illumina/Grail increased the risk of merger reviews for transactions, especially in digital and innovative markets where traditional revenue-based thresholds might not always fully capture the competitive impact of certain deals. The ECJ’s judgment partly reverses this, leading to fewer interventions in such sectors unless new legal tools to enable reviews are developed, which is bound to take some time.

• Impact on DMA. Article 14(1) of the EU Digital Markets Act imposes an obligation on designated “gatekeepers” to inform the EC of any concentrations to which they are party. Part of the rationale for that obligation was to allow the EC to trigger references, under Article 22 EUMR, from Member States of transactions falling under the EUMR thresholds. The Judgment of the ECJ therefore deprives this provision of part of its intended bite.

Footnotes

1. The EC accepted requests to review three other transactions that were not reviewable under the referring Member States’ laws: EEX/Nasdaq Power; Qualcomm/Autotalks; and Brasserie Nationale/Boissons Heintz.

2. France was one of the Member States that requested that the EC review Illumina/Grail.