News Update Competition
28 May 2021
The European Commission (‘’Commission’’) was quick to put into practice its new guidance (‘’Guidance’’) on the referral mechanism set out in Article 22 EU Merger Regulation ("EUMR") by accepting the French Competition Authority's referral request to review Illumina's acquisition of GRAIL. According to the Guidance, Member States may refer virtually all concentrations to the Commission.
Commission's change in approachThe referral mechanism laid down in Article 22 EUMR allows Member States to request the Commission to examine a merger that does not have an EU dimension but affects trade within the single market and threatens to significantly affect competition within the territory of the Member States making the request.
Until recently, the Commission’s policy was to reject referral requests below national merger control thresholds. In the new Guidance, published on 26 March 2021, the Commission states that it seeks to facilitate and encourage referrals by Member States where national merger thresholds are not met but where the remaining requirements of Article 22 EUMR are fulfilled. This policy aims to single out mergers involving strong players acquiring companies with little to no turnover that could nevertheless have an actual or future competitive potential in the internal market. For a more in-depth discussion on the new Guidance, please read our 16 April Competition News Update.
Shedding light on Illumina's GRAIL mergerIllumina is a US-based pharmaceutical company that develops and sells next generation sequencing systems. It announced its intention to acquire US-based pharmaceutical company GRAIL last year. GRAIL develops new cancer detecting tests that rely on next generation sequencing systems such as those developed by Illumina. The acquisition does not reach the EU merger thresholds, nor does it meet the applicable thresholds in any Member State, because GRAIL generates very little to no turnover.
On 19 February 2021, the Commission invited the national competition authorities ("NCAs") to trigger the Article 22 procedure. Consequently, the French NCA requested to refer the case to the Commission on 9 March 2021. Several Member States joined France in its request. Notably, while the Commission had already amended its referral practice, the Guidance had not yet been published at the time of the referral.
The Commission justified the application of the referral procedure by holding that the transaction could potentially restrict access or lead to increased prices of Illumina’s systems for GRAIL’s competitors while emphasising the importance of accessible genomic cancer tests. In addition, the Commission pointed out that GRAIL's competitive significance is reflected in the deal's EUR 8 billion value rather than from its turnover. Considering that Illumina has around 90% market share in the next generation sequency systems market, it is plausible that Illumina may not commercialise its technology to benefit GRAIL's competitors. This indeed sheds light on the potential future impact of the merger on the competition between GRAIL's competitors.
Illumina filed an appeal against the request for referral in the Netherlands and in France. In France, the domestic court rejected the appeal as inadmissible by ruling that the request was inseparable from the Commission's review of the merger and that the review falls under the jurisdiction of the Court of Justice of the European Union.
In contrast, the Dutch court assessed the appeal on its merits. However, by merely ruling that Article 22 EUMR does not require the national merger thresholds to be reached in the referring Member State, the court stayed away from interpreting the EUMR's preamble. This implies that only competent Member States may refer cases to the Commission. Interestingly, Illumina had not raised the point that the Commission's white paper 'towards more effective EU merger control' from 2014 which preceded the EUMR, clearly states that referrals must reach national thresholds. Finally, the court ruled that it was not for domestic courts to rule whether the Commission can put its new policy into practice before it is published. Partly for these reasons, the Dutch court rejected Illumina's appeal.
What does the future hold?In the meantime, Illumina has challenged the Commission’s decision of asserting jurisdiction over review of its acquisition of GRAIL before the General Court of the European Union ("General Court"). It remains to be seen if the Commission’s assertion of jurisdiction pursuant to Article 22 EUMR is judicially reviewable by the General Court. If it is, it will be interesting to see whether the Commission's speculation on the concentration's negative effects is sufficient to start an Article 22 procedure.
This case exposes, amongst other things, the legal uncertainty resulting from the Guidance, especially in cases where neither the EU nor the Member State notification thresholds are reached. This legal uncertainty is further intensified by the lack of EU policy or understanding between Member States on the specific type of cases that will be referred to the Commission. Recently, the Prosecutor General at the Belgian competition authority (Autorité Belge de la Concurence) informally suggested that certain specific categories of cases would merit a referral on substantive grounds, including cases involving new phone app developers, energy companies with access to essential infrastructure, or search engines that could be a potential competitive force, as well as acquisition of R&D capacities in areas like cancer testing. It was also suggested that deals where a bidder is a State aid beneficiary could make good candidates for a referral to the Commission under the agency’s new approach to subthreshold mergers. Finally, the Austrian competition authority's recent request for referral of Facebook's acquisition of Kustomer, involving digital customer service systems and online advertisements, shows that that these procedures will be increasingly used by national competition authorities in the future. Nine Member States with relatively low thresholds joined the request for referral, but the deal only reached the applicable threshold in Austria's threshold.