It is not an understatement to describe the decision in the complex Illumina-Grail saga as one of the most significant in formal EU merger control law. It goes to the core of formal merger control, namely the foreseeability of whether a merger has to be notified and thus the legal certainty and plannability of transactions. It has therefore not only kept the antitrust law world on edge in recent years, but has also had an enormous impact on M&A advice.
Today’s judgment saw the ECJ rule with final effect in joined cases C-611/22 P and C-625/22 P that a Member State without jurisdiction cannot refer a concentration to the European Commission under Article 22 of the Merger Regulation. The ECJ clarified that the opinion of the General Court and previously of the Commission was based on an incorrect literal, historical, contextual and teleological interpretation of the Merger Regulation.
The ECJ emphasises that the largely turnover-based merger control thresholds are “an important guarantee of foreseeability and legal certainty for the undertakings concerned”. Companies must be able to easily determine whether their planned merger must undergo prior review before being implemented and, if so, by which authority and under which procedural requirements.
The starting point of the legal dispute was the Commission’s reinterpretation of Article 22 of the Merger Regulation (ECMR) in March 2021. Article 22 ECMR allows Member States to refer merger control cases to the Commission. It was originally intended as a safety net to capture mergers from Member States that did not yet have their own national merger control regime when EU merger control was introduced in 1989 (which is why it is referred to as the “Dutch clause”). In departure from previous practice, the Commission’s 2021 policy change allowed it to accept referrals from Member States that had their own merger control regime, but whose thresholds were not met. The Commission wanted to fill the perceived gap in merger control to be able to examine so-called “killer acquisitions”, particularly in the digital and pharmaceutical sectors. Typically, these are highly valued start-ups with very low sales - below the Commission’s and the Member States’ thresholds - that are acquired by large, established companies at very high prices.
The first test case, Illumina/Grail, arose at almost the same time as the reinterpretation of Article 22 ECMR: US biotech giant Illumina announced in September 2020 that it would buy the start-up Grail for around USD 7 billion because it had developed a highly innovative cancer screening test. In March 2021, the French competition authority, which had no jurisdiction, referred the case to the Commission, which accepted the referral and prohibited the merger in September 2022. In the meantime, Illumina had completed the acquisition (against which the Commission imposed a record fine of EUR 432 million for gun jumping).
Illumina appealed the prohibition; it had previously challenged the referral decision in April 2021. The General Court ruled in favour of the Commission on 13 July 2022 (T-227/21) and approved the referral and thus the reinterpretation of Article 22 ECMR. Illumina appealed this decision to the ECJ. On 21 March 2024, Advocate General Nicholas Emiliou published his Opinion in joined cases C-611/22 P and C-625/22 P, which is not binding on the ECJ, and unequivocally deemed the Commission’s approach to Article 22 ECMR unlawful. A Member State that does not have jurisdiction under national law cannot refer a merger control case to the Commission under Article 22 ECMR; legal certainty must take precedence, it said. The ECJ has now followed this opinion, overturned the General Court’s judgment and annulled the Commission’s referral decision.
Consequences and analysis
The ECJ’s ruling is a serious setback for the Commission. The Commission had taken tough action against Illumina - not only prohibiting the merger, but also imposing the highest possible fine on Illumina for the premature implementation of the merger in violation of the standstill obligation. Illumina was also ordered to unwind the merger, something which has now been completed.
Following today’s ECJ ruling, it is clear that neither of these Commission decisions can stand. The Commission did not have jurisdiction to decide on the case and, in the absence of a notification obligation, Illumina and Grail were not subject to a standstill obligation. In addition, the Commission must fear the assertion of substantial claims for damages after the merger had to be unwound on its orders.
While the full impact of the ruling is not yet known, the following is apparent:
The Commission must abandon its new approach to Article 22 and discontinue pending cases. This is very welcome for reasons of legal certainty. Without a politically arduous amendment to the Merger Regulation, it can no longer pursue this path.
But while this ruling is welcome, it provides only partial relief to the M&A world. Although Luxembourg has now provided clarity, the benefit of legal certainty and the clear predictability of when mergers must be notified is being undermined by other developments.
In recent years, a number of national merger control regimes have created ex-officio powers to call-in deals that fall below the turnover thresholds. For example, such rules now exist in Denmark, Ireland, Italy, Sweden, Slovenia, Lithuania, Latvia and Hungary. Germany and Austria already introduced transaction value thresholds in 2017 in order to be able to capture killer acquisitions. These developments have significantly expanded the responsibilities of national competition authorities to review mergers. Consequently, Member States that have jurisdiction also have extended powers to make “traditional” referrals to the Commission under Article 22 and under Article 4(5) of the Merger Regulation. In the digital sector in particular, these powers are likely to be increasingly used, because the gatekeepers as defined by the Digital Markets Act are obliged to inform the Commission of any potentially relevant acquisition in the digital sector. The Commission informs the Member States of these notifications so that they can make use of their “call-in” powers and, if necessary, request a referral to the Commission.
In addition, in its decision in the Towercast case (C-449/21) from 2023, the ECJ established the power for national competition authorities to review completed mergers ex-post on the basis of Article 102 TFEU. In principle, it is also conceivable that national authorities could take interim measures to prevent or remedy any infringements of Article 102 TFEU. Competition authorities may now make greater use of this tool from their toolbox. However, in view of the narrow conditions for establishing an infringement of Article 102 TFEU and the strict procedural requirements for abuse proceedings based on this provision, this ex-post review is only likely to apply in a few exceptional cases.
The ruling does not eliminate the uncertainties, but at least reduces them and shifts them down a level. At the very least, it removes the risk that authorities without jurisdiction under national law will be able to establish jurisdiction by referring the case to the Commission.
In view of other regulatory mechanisms, such as investment control and the Foreign Subsidies Regulation, or the “voluntary” UK merger control, many parties to a merger will in any event face the question of whether - in the interest of legal certainty and plannability of transactions - a precautionary notification is helpful in a particular case to mitigate the risks of a subsequent call-in. This is where the new developments come in. It also remains to be seen whether EU lawmakers or some Member State legislatures will respond with adapted merger control rules in the coming years to close the supposed regulatory gap.
Nevertheless, this ruling is a welcome milestone and signal from the ECJ to the Commission that the end does not justify the means in a constitutional state.
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