Illumina/Grail: EU Court Rejects EU Commission’s Approach to Review of Below-Threshold M&A

The EU Court of Justice (ECJ) recently ruled that the European Commission (EC) overstepped its authority by applying Article 22 of the EU Merger Regulation (EUMR) to review and ultimately block Illumina Inc.’s acquisition of Grail LLC, a transaction which would otherwise have escaped merger control review by the EC or individual EU Member States because it did not meet the relevant jurisdictional thresholds.

The Illumina/Grail case raises questions about the future of enforcement against “killer acquisitions.” This LawFlash dives into the developments and future implications for below-threshold mergers and acquisitions (M&A) in Europe.

Summary of Key Developments and Future Implications

• Antitrust agencies worldwide have recently focused on preventing “killer acquisitions,” the concern being that large players were allegedly acquiring smaller, innovative rivals to quash future competition. This has led to the scrutiny of deals which would not otherwise have met the jurisdictional thresholds under applicable law and been reviewable. The “killer acquisition” theory is itself controversial because it is seen as inherently speculative rather than evidence-based, and applying it often in very dynamic sectors creates the risk of curbing innovation and ultimately harming competition.
• A high-profile example of this was the takeover of biotech innovator Grail LLC (Grail) by Illumina Inc. (Illumina) in 2020.[1] Under EU merger control law, parties only need to seek merger control approval where specific tests (based on revenue thresholds) are met. In Illumina’s case, there had been no legal obligation to seek approval because Grail did not generate any sales in Europe. Nonetheless, the EC—prompted by referrals from national agencies under what is known as the Article 22 procedure—decided to assert jurisdiction, investigate, and ultimately prohibit the deal, forcing Illumina to sell Grail and fining it more than €400 million in the process.
• On September 3, 2024, the ECJ ruled that the EC had acted unlawfully, emphasizing the need for foreseeability and legal certainty in EU merger control enforcement. This reflects a serious blow to the agency’s attempt to plug the killer acquisition enforcement gap. In recent years, the EC has followed the playbook it first used in the Illumina case by encouraging national agencies to use the Article 22 procedure to refer below-threshold transactions to it for review. The EC will now consider how to plug this enforcement gap while taking the ECJ’s concerns into account.
• Nonetheless, merging parties must still factor in the risk of enforcement by the EC and/or EU Member States (as well as the UK Competition and Markets Authority, which has a very broad merger control jurisdiction) when planning transactions. The ECJ held it would be lawful for the EC to accept a referral where the referring EU Member State has jurisdiction over a transaction under its own national merger control law (this was not the case in Illumina). Several EU Member States have laws that allow for the relevant agency to review deals which fall below their own specific revenue thresholds based on a subjective assessment, e.g., Ireland and Italy. Consequently, the EC and EU Member State agencies are likely to continue to allocate resources to monitoring such transactions and to rely on a “coalition of the willing” of EU Member State authorities to police “killer acquisitions.” This article also considers other policy options which may be explored, including the use of antitrust laws to investigate mergers post-closing.

Review of ‘Killer Acquisitions’ Under EUMR Stymied by Jurisdictional Thresholds

Antitrust authorities around the world have increasingly sought to review so-called “killer acquisitions.” These are acquisitions by firms with market power (generally in the technology or life sciences sectors) of startup or early-stage companies, allegedly with the intention of eliminating potential future competition. The policy decision to aggressively enforce against killer acquisitions has been controversial as it has raised concerns that this may have a chilling effect on innovation, e.g., limiting the ability of startups to exit.

The EC has been one of the most aggressive enforcers in this area, but it has faced a particular problem reviewing such deals because, under the EUMR, it does not have jurisdiction to review acquisitions without a “Community Dimension” (meaning the parties have high enough revenue across the EU and across EU Member States). In “killer acquisition” situations, the target may often have no revenue in the EU, which, in principle, means the EC lacks jurisdiction to review these transactions under the EUMR. This is equally true of the EU Member States: most (but not all) require the target to meet local revenue thresholds. In recent years, other EU Member States, such as Austria and Germany, have introduced changes to their national laws to extend jurisdiction to deals with a high enough transaction value.

EC Expands Interpretation of Article 22 EUMR to Plug Enforcement Gap

The EC’s solution to this problem was to reinterpret Article 22 of the EUMR, which allows an EU Member State to refer a transaction that does not have a Community Dimension (i.e., does not meet the requisite revenue thresholds) to the EC for review. Article 22’s original purpose (when it was first introduced in 1989) had been to allow national Member States without a competition authority to refer deals to the EC to assess.

Since at least 2020, the EC has used Article 22 to plug what it perceived to be a “killer acquisition” enforcement gap. It has actively encouraged EU Member State authorities to refer any below-threshold transactions to it, not just those that could be reviewed under national merger control laws. Subsequently, the EC issued guidance encouraging merging parties to seek guidance from it on whether specific deals may be referred. This was a controversial policy, notably being rejected by the German competition authority, which stated that it could not refer a transaction to the EC over which it could not take jurisdiction under German merger control law.

EC Investigates and Blocks Illumina’s Acquisition of Grail

On September 21, 2020, Illumina, a US company specializing in genetic analysis solutions, announced its proposal to acquire Grail, a US company that develops blood tests for the early detection of cancer. As Grail had no revenues in the EU, the transaction was not notified to the EC nor to any EU Member State.

The EC received a complaint about the deal and encouraged several EU Member States to refer the transaction to it for review under Article 22 of the EUMR. Once they had done so, the EC investigated and ultimately blocked the transaction on the grounds that it could lessen potential future competition in cancer diagnostic testing in Europe. It fined Illumina more than €400 million for closing the transaction without approval in the meantime, and later ordered Illumina to unwind the acquisition. Both Illumina and Grail appealed the EC’s decision on jurisdictional grounds and lost at first instance before the EU General Court. This judgment was then appealed before the EU’s highest court, the ECJ.

ECJ Rejects EC’s Expanded Interpretation of Article 22

On September 3, the ECJ definitively ruled in favor of Illumina and Grail. It held that Article 22 cannot be used as a “corrective mechanism” to review transactions which would otherwise have escaped merger control review by the EC or individual EU Member States because they did not meet the relevant jurisdictional thresholds.

In doing so, the ECJ noted that “the thresholds set for determining whether or not a transaction must be notified are an important guarantee of foreseeability and legal certainty for the undertakings concerned. Those undertakings must be able easily to determine whether their proposed transaction must be the subject of a preliminary examination and, if so, by which authority and subject to what procedural requirements.”

However, the judgment clearly allows the EC to encourage and accept a referral in circumstances where an individual Member State has jurisdiction to review a deal under its own laws.

Unsurprisingly, given the nature of the question being appealed, the ECJ refrains from giving guidance either way on the merits of enforcement against “killer acquisitions.”

How EC May Address Enforcement Gaps Without Weakening Foreseeability and Legal Certainty

The EC will likely undertake a comprehensive reassessment of its enforcement policy against killer acquisitions and may consider the following options:

• Amending the EUMR thresholds to include a transaction value test, as in the United States or Germany. This is the strongest option in terms of foreseeability and legal certainty; however, the EC has tried this before and failed to achieve consensus among EU Member States that did not wish to concede further sovereignty in this area.
• Applying EU antitrust laws prohibiting the abuse of a dominant position to mergers after they have closed, following the EU Court’s recent judgment in the Towercast case.[2] However, this would require complex and lengthy investigations and would arguably not prevent the anti-competitive harm arising out of an alleged killer acquisition. It would also undermine foreseeability and legal certainty and would require procedural changes to the EU’s own antitrust rules.
• Recommending that EU Member States amend their national laws to allow them to call in transactions which fall below defined thresholds as is the case already in Denmark, Ireland, Italy, Sweden, Slovenia, Lithuania, Latvia, and Hungary. This would allow EU Member States to continue to refer certain transactions under Article 22. While the EC has indicated this may be its preferred approach—relying on a “coalition of the willing” among EU Member States to police killer acquisitions—this is an imperfect solution as businesses are likely to still struggle to determine whether a proposed transaction could be subject to review absent clearly defined thresholds. Further legal challenge may be inevitable.

Practical Implications for Future M&A Transactions Which May Attract EC/EU Member State Scrutiny

The risk of referral of a below-threshold transaction to the EC may appear lower in the immediate aftermath of the Illumina/Grail judgment (and the withdrawal of an ongoing Article 22 referral request by seven EU Member States after the judgment is evident of this), but companies would be wise to continue to be vigilant and consult competition counsel to avoid surprises.

The EC has an established team that is proactively engaged, whether on the basis of its own monitoring activities or in response to complaints, on trying to detect potential killer acquisitions, and it can be expected that they will continue to do so, independent of referrals from EU Member States.

In addition, there are a number of factors which indicate that future enforcement in this area will continue to be a priority in Europe:

• Several Member States, including Denmark, Hungary, Ireland, Italy, Latvia, Lithuania, Slovenia, and Sweden have the power to call in transactions which do not meet precise revenue or market share thresholds (i.e., because the agency nevertheless reaches a preliminary view that competition concerns cannot be excluded)
• The French competition authority has already indicated it will seek such powers, which would require changes to national law

• There is also the residual risk of post-closing application of EU antitrust law to find that the merger constitutes an abuse of a dominant position (resulting in fines or even some form of structural remedy) following the EU Court’s recent Towercast judgment
• The UK’s Competition and Markets Authority is also active in monitoring such transactions, and there is new UK legislation which reinforces its jurisdiction by allowing it to review any transaction where one party has a UK share of supply in excess of 33%

It remains as important as ever for merging parties to engage with outside competition counsel at an early stage in planning strategic transactions. This engagement is essential to assess the necessity of pre-closing filings and to determine whether, in the absence of binary thresholds, a deal could nonetheless be called in for review. Investigations can have a real effect on a deal’s timing, particularly in more complex cases where reviews can take up to two years and deals may be preemptively blocked or unwound post-completion. The need to properly allocate for risk, even in smaller transactions, should therefore not be underestimated.