THE MODERNISATION OF EU MERGER CONTROL
The long-awaited judgment in the Illumina/Grail art. 22 EUMR dispute was announced on 13 July 2022.
The General Court confirmed that the European Commission has the power to decide on a merger, referred to it by a Member State, that does not meet the EU thresholds nor was it notified nationally.
What follows is my personal view on the consequences of the ruling and what, if anything, could have been done differently.
A landmark judgment
The Illumina/Grail case is important because its outcome clarifies whether the European Commission (EC) can investigate transactions that do not meet its merger control thresholds, nor are notified to any competition authority within the EU. If confirmed, its impact on businesses worldwide can be dramatic.
Ordinarily, when a Member States receives notification of a merger, it has the possibility to refer it to the EC by virtue of art. 22 EU Merger Regulation n.139/2004 (EUMR) – if two conditions are met:
- the deal affects trade between Member States; and
- it distorts or threatens to significantly distort competition within the territory of the notifying State(s).
Art. 22 EUMR, also known as the “Dutch clause”, was originally inserted to assist those Member States that did not have a merger control regime in place. A Member State, with merger control rules, that does not have jurisdiction to review a concentration has rarely, if ever, referred it for review to the EC before. According to Commissioner Vestager, national competition authorities were instead discouraged to do so.
Illumina and Grail are US-based entities.
Illumina, the acquirer, supplies sequencing- and array-based solutions for genetic and genomic analysis. Grail, the target, is active in the development of blood tests for the early detection of cancers. Founded in 2016, it does not generate revenues anywhere in Europe nor elsewhere in the world (judgement of 13 July 2022, Illumina/Grail, T-227/21, EU:T:2022:447, para. 9).
The timeline of the events, from agreeing the acquisition to the EC’s decision to open an investigation, is extremely important to grasp some of the issues at stake. The General Court reconstructed it as follows:
On 11 September 2020, Commissioner M. Vestager gave a public speech announcing DG Competition’s intention to change its policy in relation to art. 22 referral cases after the issuance of a new guidance.
On 20 September 2020, Illumina entered into an agreement to acquire sole control of Grail LLC, making it public a day later.
On 7 December 2020, a third party approached the EC complaining about the merger.
On 19 February 2021, the EC sent a letter to the EU competition authorities inviting them to submit a referral request ex art. 22 EUMR for Illumina/Grail and explaining why it thought the disposition would apply—a power granted to the EC by art. 22(5) EUMR.
Within 15 working days from the invitation letter, the French competition authority issued a referral request for the EC to review the Illumina/Grail proposed transaction. Competition authorities from five other Member States (the Netherlands, Belgium, Greece, Iceland and Norway) joined the request.
On 11 March 2021, the EC informed Illumina that it received a referral request, thus prohibiting the acquirer to implement the acquisition of Grail (“standstill obligation”).
On 26 March 2021, the EC adopted new Guidelines on art. 22 EUMR encouraging Member States to refer cases for a EC review even when they do not have jurisdiction to investigate a deal.
On 19 April 2021, the EC accepted the French referral request and asserted jurisdiction to review the Illumina/Grail merger (Case M.10188).
Illumina appealed the EC’s decision before the European Court of Justice, arguing that:
- the decision of the Commission to examine the concentration is outside its competence; and
- invalid due to the referral request by the French competition authority being out of time;
- the change of the EC’s referral policy, following Commissioner Vestager’s speech on 11 September 2020, is contrary to Illumina’s legitimate expectations and legal certainty;
- the EC made errors of facts and
One of the most interesting arguments put forward by the claimant concerns the change in policy and its reliance on a speech by the Commissioner for Competition—nor a primary act of law, nor an act of soft law.
The claimant, and few commentators, argued that it was not expecting such a change in merger control policy and for it to be applied without an act of law. In its third plea, Illumina invoked the violation of the principles of legal certainty and legitimate expectation. It claimed that the new Commission’s position is contrary to the principles of subsidiarity, proportionality, the right to good administration and that it required a legislative amendment (Illumina/Grail, paras. 84 and 85).
It seems only logical to wonder what Commissioner Vestager announced in her speech, at the IBA Conference, on 11 September 2020.
Concerned about certain acquisitions of small but key market players, the Commissioner affirmed how art. 22 EUMR is an excellent instrument for the EC to review mergers that matter at a European scale but do not meet the EU thresholds. She highlighted how reviewing cases only when they meet certain thresholds is a limit that the EC plans to overcome by accepting referrals from national competition authorities of mergers that are worth reviewing at the EU level, whether or not those authorities have the power to review the cases themselves.
According to the Commissioner, there would have been time for everyone to adjust to the change, for the EC to issue guidelines and an indicative deadline of mid-2021.
The Court provided its interpretation on the functioning of the referral mechanism ex art. 22 EUMR, in exactly 100 paragraphs (Illumina/Grail, paras. 85 – 185).
It clarified how Member States have the power to refer any concentration to the EC irrespectively of whether they meet the national or European turnover thresholds, using a literal, historical, contextual and teleological reading of art. 22 EUMR.
The killer argument, according to the judges, is that article 22 allows Member States to refer “any concentration” to the EC that meets its conditions (Illumina/Grail, paras. 89-94, 107, 126 – 129).
The General Court dug out the original merger control regulation and soft law from the early 2000s to substantiate its literal and historical interpretation of the disputed rule.
Interestingly, the judgment reveals how the EC itself took steps to inform national competition authorities about this new application of the referral mechanism (Illumina/Grail, para. 12). It discloses how discussions took place both at the ECN Merger Working Group and by written exchanges following the invitation letter.
The repeated exchange among authorities and the invitation letter show, in my view, how this wider interpretation of art. 22 was not immediate and perhaps needed to be explained.
Despite the importance of the companies’ products for the future of healthcare globally, only five authorities joined the request, two of which from EFTA countries. One might guess that perhaps few Member States were still hesitant on the legitimacy of the new approach.
Consulting precedents does not really help dismantling doubts.
For instance, in Apple/Shazam (M.8788) the Austrian competition authority received notification of the deal and referred it first to the EC. The Austrian and the German competition authorities were notified of Knauf/Armstrong (M.8832), the German competition authority was notified of Johnson&Johnson/Tachosil (M.9547) and of P&G/Sara Lee Air (M.5828), while the Danish competition authority had jurisdiction to review MasterCard/Nets (Case M.9744). In all these cases, other authorities that did not have jurisdiction joined the initial referral request but did not initiate it themselves.
This approach seems consistent with recent EC’s practice, as emerges from several letters it sent to national authorities joining an initial referral.
In the text of its letters to competition authorities in the Apple/Shazam, Knauf/Armstrong and Johnson & Johnson/Tachosil cases, the EC copied the second sentence of art. 22(1) EUMR. It stated that a referral request must be made within 15 working days of the date of the notification of the concentration “or if notification is not required, otherwise made known to the Member State.”
The latter sentence, strangely not included in P&G/Sara Lee Air, might play in favour of the EC’s view that art. 22 EUMR gives power to refer mergers falling outside a Member State’s jurisdiction. In the context of a modern Europe, where all Member States have a competition authority, it might, however, simply refer to the CMA’s voluntary regime (at the time of those letters, the UK was still part of the EU) where notifying a transaction is not mandatory.
Quoting art. 22(2), EUMR, the EC continues: “any other Member State may join the initial request within a period of 15 working days of being informed by the Commission of the initial request”.
The modernisation of EU merger control rules
The new policy announced by Commissioner Vestager looks like a reaction from a regulator seeking to keep up with fast paced markets and their developments. The new art. 22 Guidelines refer to transactions in the pharmaceutical and digital space (paras. 9 and 10 in the Introduction), two sectors known as arenas for killer acquisitions. As such, its intent is understandable.
I am not convinced, however, that the evolution of EU merger control does not deserve an act of law, a transition period, and a clear deadline.
Firstly, as for the argument that the proposed new application is based on existing rules, I would refer to art. 267 TFEU and note that a variation in how laws are interpreted and applied is as relevant as a change of the rules in itself.
When the EC abandoned its system of exemption and comfort letters, changing its approach to antitrust enforcement and establishing a new role for national competition authorities, it published Regulation n. 1/2003 and an array of notices, guidelines, block exemptions regulations and acts of soft law. The EC even settled a date for such change: 1 May 2004.
Article 101 and 102 TFEU did not mutate. The EC’s practice did. It was labelled as “modernisation” of EU antitrust rules and the current (r)evolution in the application of art. 22 EUMR, in my opinion, is comparable.
Secondly, national competition authorities and companies deserve a new set of rules: the former, as they get new powers and effectively take up a merger intelligence role; the latter, to be able to assess the potential consequences of a deal and balance its risks, costs and benefits.
Legal certainty should not be a privilege for companies with an established EU presence.
The new set of rules should clarify which transactions to refer, whether only anticipated mergers or completed ones too, set up a clear time limit for the referrals, focus on interim measures and indicate how art. 7 EUMR will be enforced. The recently adopted Guidelines appears perhaps too generic in these regards. For instance, according to the EC’s Guidelines on the application of the referral mechanism (para. 21) the fact that a transaction has already been closed does not preclude a Member State from requesting a referral. The EC also affirms that it will generally not consider a referral to be appropriate if it comes six months after the closing or, if not public, after material facts have been made public in the EU. The EC clarifies, however, that this approach varies on a case-by-case basis.
Their updated role of informers will also have an impact on national authorities’ current case work. The EC itself set up Directive n. 2019/1 seeking to empower national competition authorities to become more effective enforcers of antitrust rules, knowing that certain authorities lack human and financial resources to do so. A new set of clear rules will help them managing their resources by clarifying what types of concentration should be monitored and referred.
Thirdly, the new approach raises the issue of how the EC will assess European consumers’ interests in its appraisal of concentrations between entities that do not have a turnover within the EU. A company’s EU turnover is a helpful and objective proxy for calculating the intermediate and ultimate consumers’ interest. It is not yet clear to me, however, if the two conditions set in art. 22 EUMR can completely replace it.
While demonstrating the existence of an interest of EU consumers for products such as innovative blood cancer tests can be straightforward, other areas will require deeper analysis based on industrial, cultural and environmental factors.
Finally, in a mandatory notification system knowing which transaction to notify is important for companies to avoid gun jumping fines. If national competition authorities can potentially bring any concentration that meets art. 22 EUMR requirements to the EC’s attention for its review, does it mean that the EU merger control system is pivoting towards a voluntary regime whereby (i) competition authorities can call in mergers that have not been notified anywhere in the EU; and (ii) digital and life science/pharmaceutical companies without any EU turnover should stand ready to notify if they think they could be targeted by a referral?
The start of a new season of EU merger control differs greatly when compared it to the modernisation package of EU antitrust rules.
In 2003 as well as in 2021, the EC configured new dynamics in the interactions between DG Competition and national competition authorities with repercussions on businesses without altering the underlying rules. The fact that the latest changes came about with a speech to a restricted audience, no specific date for the entry into force of such change and a communication published six months after the announcement seems to reveal how much the EC might be struggling to gather political consensus to review its powers.
The General Court seconded the EC’s interpretation of article 22 EUMR and its change of approach seems to be justified by law, however it could have been introduced differently.