European Commission not authorised to prohibit takeover of Grail by Illumina

In doing so, the CJEU overturned a judgement of the EU General Court. The record fine of €432 million imposed by the Commission - which corresponded to 10% of Illumina's turnover - is therefore also invalid.

“The Commission is not authorised to encourage or accept referrals of proposed concentrations without a European dimension from national competition authorities where those authorities are not competent to examine those proposed concentrations under their own national law,” the CJEU said.

Dr Michael Reich, competition law expert at Pinsent Masons, commented on the ruling: “With this ruling, the CJEU has created legal certainty. The competences of competition authorities cannot be extended beyond the existing competences created by legislation.”

“Legal certainty is an important factor, especially when it comes to the question of whether merger control is to be carried out or not. Nevertheless, competition authorities continue to have a legitimate interest in being able to examine so-called ‘killer acquisitions’ – the takeover of small, innovative companies. We can expect that the Commission will look for new ways of examining such transactions,” he said.

Grail is a US company that develops blood tests for the early detection of cancer. Illumina is also based in the US and specialises in genetic analysis. Grail announced the planned acquisition of control on 21 September 2020.

As Grail did not generate sales in the EU or anywhere else in the world and it was therefore assumed that the merger would not have pan-European significance, the deal was not notified to the Commission. The acquisition was also not notified to the national competition authorities of the member states as it did not meet the relevant thresholds. Following the announcement of the merger, the Commission received complaints, whereupon it asked the member states to submit referral requests under the Merger Regulation so the merger could be examined by the Commission. The French competition authority submitted a corresponding request to the Commission, which was followed by other competition authorities from other EU member states.

Following a 17-month merger investigation, the Commission prohibited the takeover of Grail by Illumina in September 2022. The Commission expressed concerns that the takeover could deter Grail's competitors from innovating and developing their own cancer tests and thus impair future competition. The Commission feared price increases and less choice for consumers.

Illumina and Grail, which had already completed the merger, both appealed against this judgement. In its ruling of 13 July 2022, the General Court supported the Commission's decision, stating that it was entitled to examine the takeover of Grail by Illumina.

However, the CJEU has now overturned this judgement. It clarified that the national competition authorities cannot request the Commission to review a merger if it does not have pan-European significance and, moreover, is beyond their control because it does not meet the national thresholds.

In particular, the CJEU said the General Court was wrong to find that Article 22 of the Merger Regulation provides a ‘corrective’ aimed at effectively controlling all mergers with a significant impact on the structure of competition in the EU. The General Courts's interpretation could upset the balance between the various objectives pursued by the Merger Regulation.

Article 22 of the Merger Regulation authorises member states to refer merger control cases to the Commission. Originally, the article was only intended to cover mergers from member states without a merger control regime. But from 2021 the Commission interpreted the article in such a way that it would also cover ‘killer acquisitions’. However, the CJEU has now declared this interpretation to be unlawful.

The CJEU also said that the thresholds set to determine whether or not a merger must be notified are an important guarantee of predictability and legal certainty for the businesses concerned. Businesses must be able to easily determine whether their planned merger is subject to prior review and, if so, by which authority and under which procedural requirements.

‘The ruling will not have a direct impact on Illumina, as it has already sold Grail, but it could have a significant impact on future merger reviews in the EU,’ said Dr Reich.

US regulators had also raised concerns and ordered Illumina to divest Grail in 2023 to protect competition in the US market. Illumina has since unwound the merger with Grail.

Arkadius Strohoff, competition law expert at Pinsent Masons, said: “The interest of competition authorities in scrutinising transactions below the thresholds is not limited to the EU. This has become a global trend in recent years and shows no signs of slowing down. Despite the welcome judgement of the CJEU, M&A parties will continue to be confronted with the increasing uncertainty and complexity of international merger control rules. Therefore, it is essential to conduct a thorough analysis of potential antitrust risks for all transactions.”

In the meantime, numerous member states have created legal options for so-called ex-officio merger reviews in order to be able to scrutinise transactions below the turnover thresholds.