On 3 September 2024, the European Court of Justice (“ECJ”) published its highly-anticipated judgment in Illumina/Grail v Commission (Joined Cases C‑611/22 P and C‑625/22 P) (“ECJ Judgment”), regarding the scope of application of Article 22 of the EU Merger Regulation (“EUMR”).

The ECJ set aside the EU General Court (“GC”) judgment (Case T‑227/21) and ruled that the European Commission (“Commission”) does not have jurisdiction over transactions referred to it by the national competition authorities of EU Member States (“NCAs”) if the transactions do not meet the national thresholds of the referring EU Member States.

Key takeaways

• Based on a historical, contextual, and teleological interpretation of Article 22 EUMR and the EUMR itself, NCAs cannot ask the Commission to examine transactions which do not meet their national thresholds.
• Article 22 EUMR provides for a corrective function regarding the allocation of competences between the Commission and NCAs, and is to limit the possibility of multiple parallel notifications, providing legal certainty and facilitating the one-stop shop principle.
• An amendment of the EUMR thresholds and/or referral rules to capture below-threshold transactions would likely entail a burdensome legislative process and complex negotiations with EU Member States.
• The Commission can still rely on (i) new thresholds which have by now been introduced in some EU Member States to catch transactions outside the scope of their traditional turnover-based thresholds, and (ii) the possibility for NCAs to review these transactions by means of Article 102 TFEU, which prohibits abuses of a dominant position.

Background to the case

On 20 September 2020, Illumina Inc. (“Illumina”), a US-based gene-sequencing company, agreed to acquire Grail LLC (“Grail”) (together, the “Parties”) which develops blood tests for the early detection of cancer (the “Acquisition”). Since Grail had no revenue in the EU, the Acquisition triggered neither the EU nor the EU Member State merger control thresholds; therefore, it was not notified to the Commission or any NCA.

However, following a complaint, the Commission invited the NCAs to submit a request under Article 22 EUMR for the Commission to review the Acquisition (“Referral Request”). In response, the French NCA submitted this Referral Request, and the Belgian, Greek, Icelandic, Dutch and Norwegian NCAs asked to join. Simultaneously announcing its shift from prior policy, the Commission took the view that Article 22 EUMR allows NCAs to refer to it for review transactions which fall below the referring EU Member States’ national thresholds (i.e., where the referring NCAs do not have jurisdiction themselves) if they (i) amount to an EUMR ‘concentration’; (ii) affect trade between EU Member States; and (iii) threaten to significantly affect competition in the requesting EU Member State(s).

Accepting the Referral Request, the Commission ordered Illumina to notify the Acquisition. The Commission eventually prohibited the transaction and fined the Parties for violating the EU standstill prohibition (or ‘gun jumping’) since they had closed the transaction during the Commission’s in-depth investigation.

In addition to separate appeals – relating to the interim hold-separate orders, the gun jumping fine, and the eventual prohibition by the Commission of the Acquisition – the Parties appealed to the GC, arguing that the Commission does not have jurisdiction over transactions in response to referral requests from NCAs that do not themselves have jurisdiction. The GC rejected the appeal: according to a literal, historical, contextual, and teleological interpretation of Article 22 EUMR and the EUMR itself, the GC found that NCAs could ask the Commission to examine transactions which fall below their national thresholds.

Illumina and the Commission appealed to the ECJ.

The ECJ Judgment

The ECJ ruled in favour of the Parties and set aside the GC judgment. While it agreed with the GC that a literal interpretation of Article 22 EUMR suggests that “any” transaction which meets the above-mentioned conditions can be referred, this is not the case under a historical, contextual or teleological interpretation.

The ECJ held that the GC had erred in its historical and contextual interpretation of Article 22 EUMR, which instead pursues only two primary objectives: (i) at the time it was implemented, it was to permit the review of transactions that could distort competition in EU Member States which did not yet have merger control rules (at the time called the ‘Dutch clause’); and (ii) it was to extend the ‘one-stop shop’ principle enabling the Commission to review transactions which had been notified in several EU Member States, to avoid multiple parallel reviews and thereby enhance legal certainty for companies. The ECJ further held that the GC had erred in its teleological interpretation when holding that Article 22 EUMR is a ‘corrective mechanism’ intended to remedy deficiencies in the merger control system. According to the ECJ, this corrective function rather concerns the allocation of competences between the Commission and NCAs, and is to limit the possibility of multiple parallel notifications, providing legal certainty and facilitating the one-stop shop principle.

The ECJ concluded that it could not be established that the Article 22 EUMR mechanism “was intended to remedy deficiencies in the control system inherent in a scheme based principally on turnover thresholds, which is, by definition, incapable of covering all potentially problematic concentrations”. Such an interpretation would be liable to upset the balance between the various objectives of the EUMR, in particular “the effectiveness, predictability and legal certainty that must be guaranteed to the parties to a concentration”. The need to permit effective control of all transactions could not lead to the scope of the EUMR being extended.

Likely implications of the ECJ Judgment

The Commission will likely go back to the drawing board and carefully consider its options following the ECJ Judgment. It remains a Commission policy priority to have the proper means to review certain transactions that meet neither the EU nor any EU Member State thresholds, but which may nonetheless be harmful to competition in the EU (e.g., so-called ‘killer acquisitions’ in which the target is a start-up with significant competitive potential that has yet to generate significant revenues). 

The natural but long-term solution (suggested also in the ECJ Judgment) would be for the Commission to initiate a legislative proposal to amend the EUMR thresholds and/or referral rules, e.g., to introduce a ‘call-in’ mechanism for transactions that meet neither the EU nor the EU Member State thresholds. However, such a solution would need to undergo a burdensome legislative process and complex negotiations with EU Member States whose approval would be required. In particular, opening the door for revisions to the EUMR would give EU governments the opportunity to suggest other changes to merger policy and rekindle historically controversial debates, e.g., on the treatment of national industrial “champions” of EU member states.  

In the meantime, as a short/mid-term solution, the Commission will likely rely on two alternative routes for reviewing certain below-threshold transactions:

• First, as confirmed in a statement from Commission Executive Vice-President Vestager in reaction to the ECJ Judgment, certain transactions could be reviewed (and referred) under new thresholds which have by now been introduced in some EU Member States to catch transactions outside the scope of their traditional turnover-based thresholds. This is the case in Italy, for example, where the Italian NCA has the power to call in transactions if (i) they meet only one of the two turnover-based thresholds (or where the total worldwide turnover of the parties exceeds EUR 5 billion) and (ii) there are real risks for competition in the national market or in a substantial part of it. Similarly in Germany, a recently-introduced ‘transaction value’ threshold can be triggered in cases where only the acquirer has registered global and German revenues if (ii) the transaction value (i.e., generally the consideration for the deal) exceeds EUR 400 million, and (ii) the target has ‘substantial operations’ in Germany – which can be indicated by revenues or assets but also by other sector-specific indicators (e.g., monthly active users in the context of certain online services). Additional EU Member States may also adopt similar rules and the Commission might encourage them to do so, to fill the perceived gap which, for now, will persist following the ECJ Judgment.
  
• Second, as noted in the ECJ Judgment as well, based on the Towercast case there is also the possibility for NCAs to conduct an ex post review of certain transactions falling below both the EU and national merger control thresholds under Article 102 TFEU, which prohibits abuses of a dominant position. However, this route remains subject to several uncertainties in terms of its practical application, e.g., regarding the competent competition authorities and the legal standard for determining when an acquisition may amount to an abuse of dominance.

That said – even if companies will need to stay attentive to EU Member State thresholds which are not based on revenue (and which can confer a certain degree of discretion on NCAs, like in Italy), and may continue to face a certain degree of uncertainty regarding the potential application of Article 102 TFEU to transactions – for now, the scope for Commission review of below-threshold transactions has been limited by the ECJ Judgment. At the same time, the EU enforcement community (and companies) may also be looking to reactions just outside the EU: the ECJ Judgment may well increase expectations (and add more strain) on the UK Competition and Markets Authority to take the role of “global guardian” over these below-threshold transactions.

***

Thanks to its long-standing expertise in merger control and its strong network of local counsel, Covington can assist clients not only in submitting all the necessary filings, but also in evaluating the risks connected to transactions falling below both the EU thresholds and traditional turnover-based national ones, and in identifying the most suitable strategy to implement the transaction with the highest degree of legal certainty.