Introduction: Illumina’s acquisition of Grail blocked by the EU Commission 

In a landmark decision on 6 September 2022, the Commission prohibited under the Merger Regulation the completed acquisition by Illumina, a U.S. company specializing in genomic sequencing, of Grail, a U.S. based start-up known for developing early cancer detection tests. At the time of the ban, the start-up in question didn’t have any sales in the EEA nor launched a product on the EU internal market. 

The case of Illumina & Grail is groundbreaking because this is the first time the Commission has examined and dealt with a transaction below the EC Merger Regulation (hereinafter: EUMR) thresholds and all Member States’ thresholds which was referred to it pursuant to the revised policy to seize such transactions jurisdictionally. Additionally, this is the first time the Commission forbade a transaction that was already completed. Namely, while the Commission was examining the matter in August 2021, Illumina completed the acquisition. Both parties are now subjected to a separate gun-jumping investigation in accordance with Article 8(4) EUMR. 

Taking into account that Grail didn’t have a presence in the EU, the investigation seemed a bit odd from a legal perspective. Moreover, in contrast to the European prohibition, the U.S. Federal Trade Commission administrative court supported the acquisition. In this article, we are going to examine the legal grounds of the Commission’s decision, specifically in relation to the wording of Article 22 EUMR and possible legal implications such as the creation of back-door extensions of jurisdictions in the light of merger controls and ties to the proposed Digital Markets Act. 

Factual Background 

Illumina is a U.S.-based biotech company known for developing the next-generation sequencing technology (NGS) that is a lead input for early detection cancer testing. In September 2020 the company announced that it would acquire Grail, another U.S.-based start-up that researches the detection of early signs of cancer via blood tests on asymptomatic patients. The $8 billion acquisition was not unexpected since Illumina started to research the matter of early diagnosis through liquid biopsy back in 2015. At the time of the announcement, namely in 2020, the market size of the cancer detection market amounted to $115.60 billion. With Illumina operating upstream of the start-up, the transaction was merely vertical in its essence. Since Grail had not launched a product on the European market or had any sales in the EEA, the transaction was not reportable at either the EU or Member State level. 

Following a complaint in the beginning of 2021, the European Commission invited a referral by national competition agencies under Article 22 EUMR to enable the Commission to investigate the transaction in parallel to the Federal Trade Commission in the United States. The Commission’s answer in April 2022 constituted in a request to the merging parties to notify the transaction. In June 2021 Illumina notified the transaction and closed it 2 months later, along with announcing that it would hold Grail as a separate company during the ongoing investigation. Moreover, Illumina appealed the decision to accept jurisdiction, yet the EU’s General Court supported the Commission’s standing in the Illumina v. European Commission judgment delivered on July 13, 2022.  

The European Commission claimed that Grail has been engaged in an innovation race with many other competitors on the early cancer detection market, and that the acquisition would enable Illumina to foreclose the start-up’s putative rivals. The Commission has forbidden transactions in the past referred to it by Member States such as the 1995 RTL/Veronica/Endemol Case IV/M.553; the 1996 Kesko/Tuko Case IV/M.784, and the 1997 Blokker/Toys Case IV/M.890. Contemporary merger prohibitions can be found in the decisions to block India’s Tata Steel and Germany’s Thyssenkrupp merger, the Siemens-Alstom rail deal, and the ban of Hyundai Heavy Industries Holding’s acquisition of Daewoo Shipbuilding & Marine Engineering in January 2022. Even though the latter case is about two industry giants headquartered in South Korea, the jurisdiction was tied to their strong presence on the European market and the global market as well.  

The EU M&A Framework is getting tougher? 

Merger control has always been a significant component of the antitrust tool kit. Most merger control regimes worldwide operate on the same basis as the EU model, and we may find a number of such competition authorities moving in the direction of strict approaches to procedural enforcement. Nevertheless, stricter approaches require clear guidance and revised frameworks to avoid falling short of jurisdictional clarity and legal certainty to the detriment of parties involved in M&A transactions. 

It can be said that the Commission has been a bit uneasy with the lack of ability to review important transactions that fall below merger review thresholds, especially regarding the so-called ‘killer acquisitions’. The stricter approach was elaborated in the 2021 Commission Staff Working Document of procedural and jurisdictional aspects of EU merger control reflecting especially on the digital and biotech sectors as fields in which potentially anticompetitive mergers have managed to avoid scrutiny and an evaluation of the use and application of Article 22. 

The Dutch Clause: All Eyes on Article 22. 

The sudden application of Article 22 EUMR in a case that previously didn’t trigger a mandatory merger control review on the European soil was referred to, within a bunch of legal experts, as the ‘catch 22’ of M&A reviews due to the expansion of intervention powers. The term was coined by Joseph Heller in his 1961 novel Catch 22 describing bureaucratic restraints on soldiers in World War II. Namely, the fictional character Doc Daneeka, an army psychiatrist, invoked the term to explain why pilots requesting mental evaluation for insanity demonstrate their sanity and thus cannot be declared insane. Namely, the term presents a paradox in which the attempt to escape makes the escape impossible. But enough with fun facts, and let’s get down to an objective explanation of the article in question. 

Being on the books since 1989, the provision’s main purpose was to enable a national authority to refer any merger for review by the Commission even if it didn’t have a European Community dimension, taking into account that it affected trade between Member States and threatened to significantly affect competition within the territory of the state or states making the request. In the previous Merger Regulation (4064/89), the provision was originally known as the ‘Dutch clause’. The clause was rarely used in the beginning; namely, it was first used in 1993 by the Dutch and Belgian competition authorities. 

The Legal Test Under Article 22 

Article 22 brings to the table a legal test. A Member State’s request for referral is admissible if the concentration in question affects trade within Member States, and if it threatens to significantly affect competition. An elaboration of these terms may be found in the 2021 Commission’s guidance on the application of Article 22. The first criterion refers to a visible or observable influence on the pattern of trade between Member States, along with taking into account a few specific factors that may affect the trade such as the location of potential customers, the availability of products or services at stake, the degree of development and implementation of R&D projects that may be commercialized in more than one state and others.  

The second criterion is interesting since the term ‘threatens’ refers to the ability to demonstrate that, founded on a preliminary analysis, there is a real risk that the transaction could have a significant disadvantageous impact on competition and hence deserves close examination. The Guidance laid down some factors to assess the term ‘threaten’ as well, such as the creation of strengthening of the undertaking’s dominant position, the elimination of a significant competitor, the reduction of rivals’ abilities or incentives to compete, the capability to leverage a strong market position from one market to another and others. 

Moreover, the new document on Article 22 provides an expansion to other factors that may be considered as well. The category of cases that will be appropriate for referral where the merger is not notifiable is going to consist of transactions where the turnover of at least one of the undertakings concerned does not reflect its actual or future competitive potential. For instance, this expansion involves a start-up or a new entrant with important competitive potential that has yet to develop or implement a business model able to generate significant revenues; a significant innovator or an innovator conducting potentially important research; a market participant that has access to competitively important assets (i.e. IP rights, raw materials, data) and/or a market participant that provides products or services that are key inputs for other industries. While the 2021 Guidelines are an important document with the purpose to provide a higher degree of legal certainty, some paragraphs bear a striking resemblance to the Illumina & Grail legal situation. 

Potential Legal Implications of Illumina & Grail 

The new Guidance raises a number of important questions in relation to the application of Article 22 EUMR. Concerns have been raised in respect of the Court’s decision confirming uncertainty following the 2021 Guidance Paper and transactions including parties that have no business activities in the Union. In case the Commission took on an immense approach in the legal interpretation of affecting trade between Member States and threatening to significantly affect competition, it may potentially lead to the creation of a backdoor extension of jurisdiction.  

An interesting aspect of possible legal implications refers to the notification obligation under Article 14 of the proposed Digital Markets Act. Namely, the EU General Court’s interpretation of Article 22 EUMR could smooth the path for future applications of Article 14 DMA in the digital world. The article in question prescribes the gatekeepers’ obligation to inform the Commission of any intended concentration within the meaning of Article 3 EUMR, where the merging entities or the target of concentration provide core platform services or any other services in the digital sector or enable the collection of data, irrespective of whether it is notifiable to the Commission or to a competent national competition authority under national merger rules. 

Sources: 

A. Books/Journal Articles/Publications:

Alderman B.L. & Blair, R.D. (2022) Preserving Potential Entry is Not the Holy Grail in Vertical Merger Enforcement, 36 Antitrust 42 (2021-2022). 

Bushell, G. (2021) How Illumina-ting: The EU Merger Regulation and the brutal operation of power under Article 22 EUMR, Kluwer Competition Law Blog. Kluwer Competition Law Blog  

Levy N. et al (2021) The European Commission’s New Merger Referral Policy: A Creative Reform or an Unnecessary End to ‘Brightline’ Jurisdictional Rules?, CoRe Berlin Vol. 5 Issue 4, pp. 364-379. 

B. Case Law:

Illumina Inc. v European Commission (2022) General Court, T-227/21.   

C. Legal Framework & Related Documents:

Commission staff working document evaluation of procedural and jurisdictional aspects of EU merger control (2021) European Commission, SWD (2021) 66 Final. 

Communication from the Commission – Commission Guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to a certain category of cases (2021) European Commission, C (2021) 1959 Final. 

Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (the EC Merger Regulation) (2004) OJ L 24. 

Proposal for a Regulation of the European Parliament and of the Council on contestable and fair markets in the digital sector (Digital Markets Act) (2020) COM (2020) 842 Final. 

D. Other:

Amaro, S. (2019) EU blocks Alstom-Siemens rail merger due to ‘serious competition concerns’, CNBC. EU blocks plan for Alstom-Siemens rail merger (cnbc.com) 

Euractiv (2022) EU blocks merger of South Korean shipbuilders, Euractiv. EU blocks merger of South Korean shipbuilders – EURACTIV.com