Background to the judgment
The ECJ’s ruling concerns the EC’s contentious approach to Article 22 of the EUMR. This was revised in March 2021 to encourage EU Member States to refer transactions to the EC for review even where EU and national merger control filing thresholds are not met. The rationale behind the new policy was to address some of the gaps and challenges that are faced by the EC in capturing and assessing the competitive effects of certain types of transactions, especially those involving so-called “killer acquisitions” of start-ups or innovative players, i.e., transactions likely to eliminate a source of future competition where at least one of the parties’ turnover does not reflect its actual or future competitive potential. These acquisitions often fall below the merger control thresholds.
Illumina’s planned acquisition of GRAIL was the first deal referred to the EC under the revised policy. GRAIL did not have any turnover in the EU or elsewhere in the world and the transaction was not notified to the EC or in any EU Member State. However, following receipt of an EC letter encouraging referral under Article 22, the French antitrust authority made a referral request which was subsequently joined by five other NCAs and accepted by the EC.
The parties contested the EC’s jurisdiction to review the transaction and appealed to the GC which, in 2022, backed the EC’s broad interpretation of its Article 22 powers.
Both Illumina and GRAIL appealed the GC’s judgment. Ultimately, the EC blocked the transaction due to antitrust concerns, but the parties persisted with their appeal.
Legal certainty at the heart of the ECJ's judgment
The ECJ has concluded that the GC erred in finding that a “literal, historical, contextual and teleological interpretation” of Article 22 allows NCAs to ask the EC to examine a merger that not only lacks an EU dimension but also falls outside their competence to review.
In particular, the ECJ disagrees with the GC’s view that Article 22 is a “corrective mechanism” for the effective control of all concentrations with significant effects on the structure of competition in the EU. The GC had concluded that Article 22 was intended to remedy deficiencies in the merger control system by allowing Member States to refer “any concentration” to the EC and enable the EC to examine below-threshold mergers likely to impact competition in the EU but which would otherwise escape scrutiny.
Instead, the ECJ considers that, based on a historical and contextual interpretation, the Article 22 referral mechanism has only two primary objectives: (i) to allow scrutiny of transactions that could distort competition locally in EU Member States that do not have national merger control rules (today, Luxembourg is the only Member State that does not have a merger control regime, though they are in the process of adopting one); and (ii) to allow a single EC examination of transactions notifiable in several Member States in order to avoid multiple notifications at national level (the “one-stop shop” principle).
In line with advice from Advocate General Nicholas Emiliou, the ECJ considers that the GC’s interpretation of Article 22 is liable to upset the balance between the various objectives of the EUMR taken as a whole.
Significantly, the ECJ points to the need for effectiveness, predictability and legal certainty. It considers that the thresholds set for determining whether a transaction must be notified under a mandatory, suspensory regime are “of cardinal importance” and that determining the competence of NCAs by reference to turnover criteria is “an important guarantee of foreseeability and legal certainty”.
The Advocate General summed up the GC’s interpretation as meaning that unless merging parties “take positive action to inform the 30 national authorities of the existence of a non-notifiable merger, those parties cannot have any legal certainty as to whether the Commission will at some point in the future, be asked to review the merger on the basis of Article 22 EUMR and, if so, within which time frame”.
Ultimately, the ECJ says, merging parties must be able to “easily and quickly” determine whether their proposed transaction is the subject of a mandatory review and, if so, by which authority and under what procedural requirements.
Practical implications
The ECJ’s emphasis on legal certainty will be welcome for merging parties, which will no longer have to be concerned about their deals being disrupted through the unexpected initiation of a suspensory EC review where national thresholds are not met, or even a post-closing review that could lead to the deal being unwound.
However, the practical impact of this will be tempered somewhat by the increasing breadth of Member State’s powers to review deals. A number of EU Member States have the power to “call in” mergers that do not otherwise meet their thresholds. Member States already benefiting from such a call-in option include Denmark, Ireland and Italy. These Member States would then be competent to refer the review of the merger to the EC under Article 22. In responding to the ECJ’s ruling, Executive Vice-President Margrethe Vestager has noted that the introduction of these provisions over the last few years means that the possibilities for compliant Article 22 referrals are “already more extensive than they were at the time of the Illumina/GRAIL referral”.
In addition, many Member States have thresholds that do not rely solely on turnover: for example, Germany and Austria already have thresholds that are triggered by the size of a transaction. However, even deal value thresholds are not fail-safe: the Illumina/GRAIL merger did not need to be filed in either of these countries.
There is also the possibility that EU abuse of dominance rules could be used to review below-threshold transactions, as confirmed by the ECJ in the Towercast case. This has the potential to create uncertainty for companies who could see enforcement years after a transaction has closed.
Looking further ahead, if any perceived “enforcement gap” arises as a result of the judgment, it is possible we could see changes to the EUMR thresholds and criteria (although implementing this would likely take years) and/or to Member State thresholds.
It is also worth noting that the appetite of antitrust authorities to review below-threshold deals is not limited to the EU. Over the past few years it has become a global trend, and one that shows no sign of abating. Merging parties will continue to face the growing uncertainty and complexity of the international merger control landscape, despite the ECJ’s welcome judgment. Read more about this in our report on global trends in merger control enforcement.
Other consequences of the ECJ's judgment
Given the EC did not have jurisdiction to review Illumina/GRAIL, the EC’s prohibition — which marked the first time that the EC had prohibited a purely vertical deal — unwinding order and unprecedented interim measures decision all fall away. We expect the EC to move quickly to withdraw these decisions.
Most crucially for the parties, the EC no longer has a legal basis to penalize them for completing the transaction while the EC’s investigation was ongoing. In 2023, the EC fined Illumina a record EUR432 million — reaching the maximum possible of 10% of turnover — and GRAIL a symbolic EUR1,000 — the first time a target had been fined for gun-jumping.
The parties’ victory will not revive the transaction, however. Due to opposition to the deal from the U.S. Federal Trade Commission (FTC), Illumina announced its intention to unwind its merger with GRAIL in December 2023 following a U.S. Court of Appeals for the Fifth Circuit decision that supported the FTC’s determination of anticompetitive harm in the market for cancer detection tests.
