In one of the most keenly awaited competition law judgments in years, the Court of Justice of the European Union (CJEU) has delivered a blow to the European Commission’s efforts to target so called “killer acquisitions”, finding that the regulator lacked the authority to review the acquisition of Grail, a US cancer-testing company, by Illumina, a US gene-sequencing specialist. 

The CJEU ruled¹ that the Commission could not accept the referral of the merger from six national competition authorities that were not themselves competent to examine it under their own national merger control rules. The judgment has significant implications for the Commission’s policy of using the referral mechanism in Article 22 of the EU Merger Regulation (Article 22, or the referral mechanism) to capture “killer acquisitions” – transactions where established players acquire smaller innovators that may have a significant competitive potential, but do not generate enough turnover to trigger merger notifications.

Background 

In 2021, the Commission decided to extend its use of Article 22, which allows member states to refer “any concentration” to it that “threatens to significantly affect competition” within their territory and affects trade between member states. In particular, the Commission encouraged member states to refer transactions involving targets whose competitive potential was not reflected in their turnover². This represented a departure from the Commission’s previous practice of not accepting referrals of transactions that were not caught under the relevant member state’s merger control laws. The Commission argued this was necessary to ensure effective control of all mergers that may have significant effects on the structure of competition in the EU, correcting for the deficiencies inherent in a system based on turnover thresholds. It also claimed that this was the least burdensome option and would not create undue legal uncertainty or delay for the merger parties. 

The acquisition of Grail by Illumina was the first transaction caught by this new policy. It did not meet the EU Merger Regulation (EUMR) turnover thresholds, nor did it need to be notified in any EU member state. But in response to a complaint from a third party – alleging the deal would negatively impact the emerging market for multi-cancer early detection tests by foreclosing competitors’ access to Illumina’s essential inputs – the Commission invited the member states to refer the transaction to it under Article 22, which France and others subsequently did. Following an in-depth investigation (during which Illumina completed the acquisition, in breach of the EUMR standstill obligation), the Commission prohibited the merger, ordered that Illumina divest Grail, and imposed a record €432 million fine for “gun jumping”.

At first instance 

Illumina and Grail challenged the Commission’s competence to examine the concentration before the general court, claiming that the Commission had misinterpreted and misapplied Article 22, and that its decisions violated the principles of legal certainty, subsidiarity and proportionality. Illumina also contended that the Commission had infringed its rights of defence and the duty of good administration by inviting the Member States to request a referral without giving Illumina an opportunity to comment on the complaint or the referral request.

The General Court agreed with the Commission’s interpretation of Article 22, concluding that it did allow member states to ask the Commission to examine mergers that fall below their respective notification thresholds and those under the EUMR (referred to hereafter as “below-threshold mergers”), as long as they affect trade between member states and threatened to significantly affect competition within their territory³. The general court rejected Illumina’s arguments that the Commission’s interpretation of the referral mechanism undermined the legal certainty and predictability of the EU merger control system, stating that the Commission had acted transparently and consistently with its previous practice and guidance.  

The CJEU’s judgment

The CJEU set aside the General Court’s judgment and annulled the Commission’s decision, concluding that the Commission had no right to review the Illumina-Grail transaction. In doing so it followed the Advocate General’s opinion⁴ in finding that a literal, historical, contextual and teleological interpretation of Article 22 did not support the Commission’s (and the General Court’s) broad reading of that provision. Key to it reaching that conclusion were the following considerations.

• The CJEU agreed that a plain reading of Article 22 indicated that a member state could refer any concentration to the Commission, regardless of the existence or scope of its national merger control rules, but that further interpretive methods were required to clarify the Article’s scope given its concise and general wording. The General Court was therefore correct in examining the legislative history and broader context of EU law to ascertain the provision’s true meaning and application.
• Contrary to the General Court’s findings, the CJEU determined that the historical record – including the travaux préparatoires for the adoption of the relevant regulations – did not support a broad interpretation of Article 22. The CJEU instead considered that the record showed that the referral mechanism was primarily intended for member states without merger control regimes to ask the Commission to examine mergers that could affect interstate trade, and was not intended as a corrective tool to address deficiencies arising from the rigidity of the turnover thresholds.
• The CJEU found the factors considered by General Court in its contextual interpretation of Article 22 to be inconclusive, whereas other factors supported Illumina and Grail’s interpretation. In particular, the CJEU contrasted the referral mechanism in Article 22 with that provided for by Article 4(5) EUMR. In the case of the latter, transactions referred to the Commission acquire a European dimension, such that no member state may apply its national competition laws to them. Where a transaction is referred pursuant to Article 22, the Commission’s examination of the transaction simply replaces that which would have been carried out in the relevant member state; where that member state has its own ex-ante merger control rules, this presupposes that the relevant authority is not prevented from reviewing the transaction in the first place. Further, Article 22(1) requires the concentration being referred to significantly affect competition within the territory of the requesting member state. This suggests that the referral mechanism is intended to allow Commission scrutiny of concentrations that could distort competition in member states without national merger control rules (as opposed to those affecting the EU’s internal market in general), or where necessary to avoid multiple notifications. 
• The CJEU considered the General Court’s interpretation of Article 22 to be inconsistent with the objectives of the EUMR. The CJEU emphasised that (as its historical and contextual interpretations of Article 22 revealed) the referral mechanism was not intended to fill “gaps” in the merger control system by allowing the Commission to examine below-threshold mergers. Instead, it was intended to ensure a correct allocation of competences between the Commission and national authorities. If the Commission wished to remedy perceived deficiencies in the merger control system it must consider other options, such as revising the EUMR thresholds or encouraging member states to lower their national thresholds. The Commission’s interpretation of Article 22, as endorsed by the General Court, would upset the balance between the various objectives pursued by the regulation and undermine the principles of effectiveness, predictability, and legal certainty that must be guaranteed to merger parties. The CJEU emphasised that the EU merger regime was based on a clear allocation of powers between the Commission and the national competition authorities, and on a precise definition of the notification and suspension conditions imposed on merger parties.

Other grounds of appeal were raised by the appellants (including that the Commission had violated certain general principles of EU law), but the CJEU did not need to examine them. Its conclusion regarding the correct interpretation of Article 22 was sufficient to resolve the appeal in Illumina and Grail’s favour. 

Implications and next steps

The CJEU’s judgment is undoubtedly a significant setback for the Commission, which had placed great importance on encouraging member state authorities to refer below-threshold mergers to it under Article 22. Not only was this seen as a solution to the problems presented by the perceived increase in “killer acquisitions” in certain sectors, but the EU Digital Markets Act (DMA) expressly relies on Article 22 for the possibility of the Commission reviewing below-threshold mergers notified to it by gatekeepers pursuant to Article 14 DMA (the DMA itself includes no standstill obligation or clearance requirement in respect of such transactions). And in terms of immediate effects, the enforcement steps taken by the Commission in respect of the Illumina-Grail merger – including its record fine for "gun jumping" – all fall away, as they had no valid legal basis (although Illumina in any event divested itself of Grail earlier this year, at a significant loss, after the US antitrust authorities also opposed the merger).

Nevertheless, the judgment is unlikely to put an end to the Commission’s desire to review “killer acquisitions”, as there is broad consensus amongst enforcers that they warrant scrutiny. In a press release issued on the day of the judgment, outgoing EU Competition Commissioner Margrethe Vestager stated that the Commission “will consider the next steps to ensure that the Commission is able to review those few cases where a deal would have an impact in Europe but does not otherwise meet the EU notification thresholds”.

As to what those next steps might be, several options appear open to the Commission. It could propose adjustments to the EUMR’s notification thresholds, for approval by a qualified majority of the European Council pursuant to Article 1(5) EUMR. It could also propose other amendments to the EUMR, to establish its own authority to call in competitively significant below-threshold mergers. However, the latter would require a legislative process which could prove politically intricate and contentious, and a simple lowering of the EUMR thresholds pursuant to Article 1(5) would result in too many transactions requiring notification at EU level. Another potential option, following the CJEU’s recent judgment in Towercast⁵, is the deployment of Article 102 (or 101) TFEU to tackle acquisitions that could significantly affect competition. This, however, has been seen as sub optimal given, amongst other things, its reliance on the timely imposition of interim measures to prevent implementation steps that might irreversibly impact competition. Additionally, the Towercast judgment is not entirely clear on whether the Commission can apply Article 102 TFEU to below-threshold mergers, as it addressed only the power of national competition authorities to do so.

Given these considerations, the solution likely lies at the member state level (in the short term at least). In her statement (and in a subsequent speech⁶), executive vice president Vestager highlighted that a number of member state antitrust authorities have, since 2021, introduced provisions allowing them to request the notification of mergers that do not meet national turnover thresholds⁷. Such transactions may then lawfully be referred to the Commission under Article 22. The Commission may well encourage other member states to introduce such call-in powers⁸ or otherwise broaden their jurisdictional reach, including through thresholds triggered by the parties’ market share, the size of the transaction, or the asset value of the target, rather than just turnover. However, these call-in powers are not uniform, and differ in terms of their criteria – including as to their need for a domestic nexus. It also remains to be seen whether the relevant national authorities will agree to wield their discretion to call in mergers at the behest of the Commission. 

Concluding remarks

Whilst the CJEU’s judgment underscored the need for clearly defined thresholds and obligations within the EU system of merger control, the application of fragmented national powers to close the perceived “gap” created by the ruling could well undermine the principles of effectiveness, predictability and legal certainty, and precipitate further legal challenges. 

In the longer term, a legislative solution that includes a clear test targeted at killer acquisitions – such as that introduced by the UK Digital Markets, Competition and Consumers Act⁹ – could prove preferable, both to merger parties and Europe’s competition authorities.

¹ Cases C-611/22 and C-625/22 Illumina and Grail v Commission. 
² Guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to certain categories of cases (2021/C 113/01). 
³ Please refer to our previous article for more detail on the General Court’s judgment.
⁴ See our previous article on the Opinion. 
⁵ Case C-449/21 Towercast v Autorité de la concurrence and Ministère de l’Économie. 
⁶ EU Competitiveness and an Effective Competition Regime (europa.eu)
⁷ Currently, competition authorities in eight Member States wield call-in powers, namely Denmark, Hungary, Ireland, Italy, Latvia, Lithuania, Slovenia and Sweden.
⁸ Czechia, Finland, France and the Netherlands have indicated they are seeking or may seek similar powers.
⁹ See our previous article on the relevant changes to the UK merger regime.