In its judgment of 13 July 2022 in Case T-227/21, Illumina v Commission (“Judgment”), the General Court (“GC”) held that an EU Member State may refer a merger case to the European Commission (“Commission”) under Article 22 of the EU Merger Regulation 139/2004 (“EUMR”) even if the case does not fall within the scope of that Member State’s national merger regime.

In doing so, the GC approved the Commission’s approach to rely on Article 22 EUMR in order to catch so-called “killer acquisitions” and others. Because it also sheds light on procedural issues in connection with Article 22 EUMR, it is clearly a landmark judgment. However, as Illumina has already announced that it will appeal the Judgment and given that the Commission’s approach raises considerable legal concerns, it remains to be seen whether also the European Court of Justice will side with the Commission.

Significance of the case

The number of transactions that concern targets which already play or may be playing a significant competitive role on the relevant markets has been increasing over the last of years. However, in the past, many of such acquisitions were not caught by merger control at all. This is because at the time of the transaction, the newcomer is typically still so small that it does not exceed the turnover, asset or market share thresholds that traditionally define the scope of application of merger control regimes. Killer acquisitions are transactions – allegedly taking place mainly in the digital or pharma sector – whereby a large incumbent market player buys a new entrant before it can grow large enough to threaten the incumbent’s market position. Killer acquisitions are particularly detrimental for competition because they remove the great potential for disruptive competition that successful new entrants often have. To catch such acquisitions, some EU Member States (e.g., Germany and Austria) have recently added transaction value thresholds to their merger control regimes.

The Commission refrained from introducing new thresholds and took a different approach. In its Article 22 EUMR guidance document of 26 March 2021, the Commission stated that while it had in the past discouraged EU Member States from referring to the Commission under Article 22 EUMR cases for which they did not have original jurisdiction, it will from now on encourage EU Member States to do so and accept such referrals, in particular in order to cover killer acquisitions. Nevertheless, the wording of the guidance and the Judgment is very broad and certainly not limited to killer acquisitions or concentrations in certain industries. Therefore, although the killer acquisitions in the tech or pharma industry might be an obvious target for the time being, the new approach certainly extends its reach to any concentration in any industry.

The Commission’s approach to rely on Article 22 EUMR in order to catch transactions that do not trigger the notification obligations was received with strong criticism by large parts of the legal community, which is why the Judgment was keenly awaited.

The main criticism is that by interpreting Article 22 EUMR so widely, the Commission can – with the help of at least one EU Member State – circumvent the turnover thresholds set out in Article 1 EUMR and thereby extend its merger control jurisdiction. As a consequence, in order to obtain legal certainty, companies would have to notify all transactions that meet the conditions set out in Article 22 EUMR to the Commission, which would impose on them an undue burden and create considerable economic damage.

Facts of the case

The Illumina/Grail merger case, which resulted in the Judgment, began before the Article 22 EUMR guidance was published and was the first case that the Commission handled under its new policy. On 21 September 2020, Illumina announced its intention to acquire sole control over Grail. The parties did not submit any notification to the European Commission or to any competition authorities of EU Member States since the parties´ turnover did not exceed any of the applicable thresholds. This was in particular due to the fact that Grail did not generate any revenue worldwide.

On 7 December 2020, the Commission received a complaint about the concentration. On 19 February 2021, the Commission sent to all national competition authorities of the EU a letter inviting them to submit a referral request under Article 22 EUMR. On 9 March 2021, the French Competition Authority submitted such a request; other national competition authorities followed. On 19 April 2021, the Commission issued the decision to accept the referral request (“Contested Decision”), which Illumina challenged before the GC.

Judgment

In the judgment of 13 July 2022, the GC upheld the Contested Decision and made the following key findings:

The Commission’s decision to accept the referral request is a challengeable act 

The Commission challenged the admissibility of the action. It claimed that a decision to accept a referral request is a preparatory act, so that it can be challenged only in an action brought against the final decision on the concentration. The GC rejected this argument and noted that the Contested Decision produced binding legal effects vis-à-vis Illumina. This is because without the decision, the concentration would not be examined, and it could be immediately implemented within the European Union. Accordingly, the GC noted that the Contested Decision brings to an end the referral procedure under Article 22 EUMR. The GC held that this is a special procedure distinct from that which enables the Commission to prohibit or authorize a concentration under the same regulation. 

The Commission is competent to examine a concentration referred to it by a Member State, even if the transaction is not subject to notification obligation under the national merger control regime of the Member State

The GC carried out a detailed analysis of Article 22 EUMR that started with its literal interpretation. Here the GC referred to the wording which notes that “any concentration” may be referred to the Commission, as long as the following cumulative conditions are fulfilled: 

1. The referral request must be made by one or more Member States,
2. the request must concern a concentration under Article 3 EUMR that does not meet the thresholds under Article 1 EUMR, 
3. the concentration must affect trade between Member States, and 
4. the concentration must threaten to significantly affect competition within the territory of the Member State or States which made the referral request. 

According to the GC, even if the relevant Member State does not have a merger control regime in place (such as the Grand Duchy of Luxembourg) or the concentration does not fall within the scope of the existing merger control regime, this does not mean that these concentrations are excluded from the scope of Article 22 EUMR. 

Following the literal interpretation of Article 22 EUMR, the GC also conducted a historical, contextual and teleological interpretation, all of which confirmed the GC’s finding that Article 22 EUMR enables the Member States to refer any concentration to the Commission irrespective of the scope or existence of their national merger control regimes. 

The GC acknowledged that the referral mechanism was originally established to be used in the Member States that do not have their own merger control system but held that this does not limit its applicability to that situation alone. Accordingly, the GC explained that Article 22 EUMR provides the Commission with the flexibility that it needs to ensure that concentrations that do not exceed the thresholds under Article 1 EUMR but would significantly impede effective competition in the internal market do not escape the Commission´s review. 

The GC also rejected Illumina’s argument that the Contested Decision was contrary to the principles of subsidiarity, conferral of competences, legal certainty, and proportionality. 

“15 working days” start with the active transmission of relevant information to the Member States concerned which contain sufficient information to enable the Member State to carry out preliminary assessment 

Article 22 EUMR provides that a Member State must make its referral request within 15 working days of the date on which the concentration was notified or otherwise made known to it. The GC decided that in the present case, this period did not start running at the day of the public announcement of the transaction because such announcement did not comprise an active transmission of information to the Member State competition authorities. According to the GC, such active transmission occurred only when the Commission sent its letter to invite Member States to submit a referral request under Article 22 EUMR.

A period of 47 days between the receipt of the complaint and the sending of the invitation letter is not reasonable 

In view of the short nature of the time limits laid down by the EUMR and in particular by Article 22 EUMR (15 working days for the Member States to make the referral and 10 working days for the Commission to examine the complaint), the GC ruled that the 47-day period that passed between the receipt of the complaint by the Commission and inviting the Member States to submit a referral request was unreasonably long. Nevertheless, the GC concluded that Illumina could not establish any negative effect on its rights of defense due to the infringement of the reasonable time principle. The GC rejected the arguments raised by Illumina to the effect that there was a breach of the principle of protection of legitimate expectations. As to the allegation of an infringement of the principle of legal certainty, the GC found this to be insufficiently substantiated. 

What does this mean in practice? 

The judgment of 13 July 2022 (if ultimately upheld by the European Court of Justice) has created significant uncertainties associated with Article 22 EUMR, which companies entering a transaction should carefully consider:

• Generally speaking, this judgment greatly extends the powers of the Commission and the national competition authorities. Even if the national thresholds are not exceeded, this does not exclude the risk that the Commission – with the help of at least one Member State – can review an un-notifiable transaction under an Article 22 EUMR referral procedure. Although the pharma and the tech industry are certainly on the radar, Article 22 EUMR is not limited to these industries or only to killer acquisitions; and rather might be applicable to any concentration. 
• The extent of this risk is very hard to estimate in practice, given that Article 22 EUMR provides for no clear thresholds (such as de minimis rules, or turnover/market share thresholds). The uncertainty surrounding Article 22 EUMR is particularly significant if it is unknown whether there are competitors or other interested third parties who, as a strategy to block or at least delay the transaction, might submit a complaint to the European Commission – which was the triggering event in the Illumina/Grail case.
• The GC judgment provides a very authority-friendly interpretation of the start date of the 15 working days period, as it establishes the requirement of an “active transmission” of information to the relevant competition authority. Unless the parties make a voluntary notification or a complainant informs the authorities, there is a very long period of legal uncertainty, which continues even after the public announcement and the closing of the transaction. 
• In practice, this could mean that the companies have to choose between two options: Either they rely on their self-assessment and take the risk of not making any voluntary notification to any competition authority, which would however mean that there will be legal uncertainty for a long period – even after the closing of the transaction. Or they can simply prefer to make a voluntary notification to the authorities to start the clock, which would result in legal certainty after 15 working days.
• These uncertainties would also affect the deal-planning of the transaction: 
  • If the transaction were to be referred to the Commission, it means that there will be a considerable delay in terms of timing. It could even mean parallel proceedings happening in one of the Member States and the Commission. With a view to the UK CMA’s very broad interpretation of the share of supply test, such transaction may also require approaching the UK authority.
  • The transaction documents must be drafted in a way to anticipate these risks. This will not only require respective CP-clauses that reflect the referral possibility. Longstop dates, for example, must be adopted for a possibility of an Article 22 EUMR referral as well.
  • Similarly, an Article 22 EUMR referral might delay or complicate the closing of the transaction and the integration between the parties. Once the Commission accepts the referral request, this comes with uncertainties as to potential gun-jumping or even Article 101 TFEU (if the undertakings concerned are competitors) issues.