The European Commission formally withdraws its 2021 Article 22 EUMR guidance following the European Court of Justice's ruling in Illumina/Grail

Background

In September 2020, Illumina, a US based company supplying sequencing and array based solutions for genetic and genomic analysis, announced that it had entered into an agreement to acquire Grail, a US based company developing blood tests for early detection of cancers, for USD 8 billion (the "Transaction"). At the time of the Transaction, Grail had no turnover in the EU and the Transaction was not notifiable to the European Commission or any national competition authority in the EU.

After having received a complaint from a third party, the Commission in March 2021 encouraged Member States to refer the Transaction to the Commission for review under Article 22 of the Merger Regulation. The Autorité de la concurrence in France initially submitted a referral request to the Commission which was later joined by the national competition authorities of Iceland, Norway, Belgium, the Netherlands and Greece.

Shortly after having accepted the referrals, the Commission published its guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to certain categories of cases (the "Article 22 Guidance"). In this document, the Commission argued that the system of referrals under Article 22 constitutes a "corrective mechanism", and that it "is clear from the wording, the legislative history and the purpose of Article 22 of the Merger Regulations, as well as from the Commission's enforcement practice, that Article 22 is applicable to all concentrations, not only those that meet the respective jurisdictional criteria of the referring Member States". 

This reading of Article 22 was controversial and seen by some as an attempt by the Commission to expand its jurisdiction outside the proper legislative process, but the Commission argued that it had always had jurisdiction to review any merger under Article 22 and that it was simply a matter of internal policy (rather than a matter of law) that it had developed a practice of discouraging referral requests under Article 22 from Member States that did not have original jurisdiction over the transaction based on its experience that such transactions were not generally likely to have a significant impact on the internal market. Due to recent market development, the Commission argued, there was however now a gradual increase of concentrations involving firms that play or may develop into playing a significant competitive role on the market(s) at stake despite generating little or no turnover at the moment of the concentration, prompting the Commission to move away from its previous practice and instead be open to accepting referral requests also in those cases where the referring Member State did not have original jurisdiction over the transaction at stake. In this context, the Commission had in particular regard to the (at least perceived) proliferation of so-called "killer acquisitions", where an incumbent undertaking acquires a smaller entrant for the sole purpose of removing a future potential competitive force from the market, thereby impeding future innovation and competition while safeguarding the incumbent's position in the market. 

Illumina and Grail challenged the Commission's decision to accept the referrals under Article 22 before the General Court of the European Union which ultimately dismissed the actions for annulment. After finalizing its merger review in September 2022, the Commission moved to prohibit the Transaction over concerns that the merger would have stifled innovation and reduced choice in the emerging market for blood-based early cancer detection tests. Interestingly, the Transaction did not amount to a classic "killer acquisition", but constituted a traditional vertical merger, with the Commission arguing that the Transaction would have given Illumina a strong incentive to foreclose Grail's (future) competitors from getting access to Illumina's genome sequencing technology, limiting future innovation in the area of blood-based early detection cancer tests.

In parallel with the Commission's phase II investigation into the Transaction, Illumina announced that it had completed the Transaction, leading to the imposition of a record-breaking EUR 432 million gun-jumping fine in July 2023, corresponding to 10 percent of Illumina's worldwide group turnover, the statutory maximum fine. Grail, which had actively participated in the completion of the Transaction, was given a symbolic fine of EUR 1000, the amount being set with consideration to this being the first time where a Target entity had also been held liable for gun-jumping.

The ECJ's judgment in Illumina/Grail

Illumina and Grail both appealed the decision of the General Court to the Court of Justice (the "ECJ"), the highest judicial authority in matters of EU law.

As explained in detail below, the ECJ sided with Illumina and Grail, finding that the General Court had erred in law in assessing through a literal, historical, contextual and teleological interpretation that Article 22 of the Merger Regulation provided a "corrective mechanism" allowing the Commission to review any merger without a Community dimension but which affects trade between Member States and threatens to significantly affect competition within the territory of the referring Member State(s). In reaching this conclusion, the ECJ had regard in particular to the principles of effectiveness, predictability and legal certainty, finding that the interpretation advanced by the Commission and the General Court undermined those basic principles, and underscoring the "cardinal importance" of notification thresholds in the context of EU merger control.

The literal interpretation

As regards the literal interpretation, the ECJ said that the General Court was correct when it observed that a literal interpretation of the wording of Article 22 indicates that a concentration may be the subject of a referral regardless of the existence or scope of national rules on the ex-ante control of concentrations, provided that the cumulative criteria explicitly mentioned in paragraph 1 of that provision are satisfied. 

At the same time, however, the ECJ emphasized that while "it is true that it follows from settled case-law that an interpretation of a provision of EU law cannot have the result of depriving the clear and precise wording of that provision of all effectiveness […] every provision of EU law must be placed in its context and interpreted in the light of the provisions of EU law as a whole, regard being had to the objectives thereof and to its state of evolution at the date on which the provision in question is to be applied". 

The historical interpretation

As regards the historical interpretation, the ECJ conducted a detailed assessment of the travaux préparatoires (preparatory works) relating to the current Merger Regulation (Regulation No 139/2004) and its predecessors (Regulation No 4064/89 and Regulation No 1310/97), including of documents that had not been part of the proceedings before the General Court.

While the ECJ agreed with the General Court's assessment insofar that the travaux préparatoires supported that the objectives of the Article 22 mechanism had been successively extended over time with a view to strengthening the application of EU competition law,  and that recourse to the referral mechanism is not limited to Member States having no national merger control regime, the ECJ also found that the travaux préparatoires contained no indication, even implicit, that the Commission is competent to examine below-threshold transactions. In particular, the ECJ said that none of the historical documents that it examined attested to the EU legislature's intention to use Article 22 as a "corrective mechanism" or a means to "remedy alleged deficiencies" stemming from the rigidity of the turnover thresholds in the Merger Regulation. Hence, contrary to what the General Court had found, the ECJ held that a historical interpretation did not support the Commission's view that it is competent to examine below-threshold transactions under Article 22.

The contextual interpretation

As regards the contextual interpretation, the ECJ revisited the contextual factors taken into account by the General Court, in particular the legal basis for the adoption of Article 22 (i.e., Articles 83 and 308 EC, now Articles 103 and 352 TFEU) and other provisions contained in the Merger Regulation, and ultimately held that these factors were inconclusive as regards the interpretation of the scope of the Article 22 referral mechanism.

The ECJ subsequently considered a number of other contextual factors and found that these supported the interpretation of Article 22 that Illumina and Grail had advanced. In particular, the ECJ found that the General Court had erred in failing to take into account (i) that Article 1(4) and (5) of the Merger Regulation provides for a simplified procedure for reviewing and rapidly adjusting the turnover thresholds set out in Article 1(2) and (3) of that regulation, and (ii) that under the Article 22 referral mechanism, unlike under the Article 4(5) referral mechanism, a transaction is not upon the Commission's acceptance of a referral deemed to have a European dimension, and the Commission's does not upon acceptance replace the jurisdiction of all national authorities, but only of those who have submitted a referral request or joinder under Article 22(1) and (2). 

This indicated, according to the ECJ, that the Article 22 mechanism was not intended to permit the Commission to scrutinize any merger that may be harmful to competition within the EY, regardless of its exceeding national notification thresholds, but rather intended to permit the scrutiny of transactions that could distort competition in a Member State that either does not have national merger control rules or considers that such scrutiny is to be carried out by the Commission in view of the need and to extend the "one-stop-shop" principle so as to enable the Commission to examine a concentration that is notified or notifiable in several Member States, in order to avoid multiple notifications at national level.

The ECJ hence concluded that the General Court erred in holding that it followed from a contextual interpretation of Article 22 that a referral request under that provision could be submitted irrespective of the existence or scope of national rules on the ex-ante control of transactions.

The teleological interpretation

As regards the teleological interpretation, the ECJ similarly set aside the General Court's conclusions, finding that these were incorrect in several aspects.

First, the ECJ said that the General Court erred when it held that various recitals to the Merger Regulation indicated that the regulation's objective was to permit effective control of all concentrations with significant effects on the structure of competition in the European Union, that the Article 22 mechanism was intended as a "corrective mechanism" to remedy deficiencies in the merger control system, by enabling the scrutiny of transactions that do not meet either the EU or the national thresholds, and that a request under Article 22 may be submitted irrespective of the scope of national rules. 

Instead, the ECJ found that the recitals merely indicated that the Merger Regulation is the only procedural instrument applicable to the prior and centralized examination of concentrations, that the Article 22 mechanism has a corrective function in terms of allocation of competences between the Commission and the national competition authorities, taking into account the need for legal certainty for the undertakings concerned and the 'one-stop shop' principle, and that the wording of various recitals directly contradicted the General Court's interpretation that a request under Article 22 may be submitted irrespective of the scope of national rules. Moreover, the ECJ referred to its historical and contextual interpretation - outlined above - which also ran counter to the General Court's teleological interpretation.

Second, the ECJ also found that the interpretation of the General Court was inconsistent with a number of fundamental objectives which the Merger Regulation taken as a whole seeks to pursue, in particular those of ensuring effectiveness, predictability and legal certainty, noting that undertakings "must be able easily and quickly to identify to which authority they must turn" and that notification thresholds are of "cardinal importance" in that context. The need to ensure effective control of all concentrations with significant effects on the structure of competition in the EU hence could not, according to the ECJ, outweigh these fundamental objectives. 

Formal withdrawal of Article 22 Guidance and consequences for future transactions

On 29 November 2024, the European Commission announced that it had formally withdrawn its Article 22 Guidance as a consequence of the ECJ's September ruling in Illumina/Grail.

The ECJ's ruling and the Commission's subsequent withdrawal of its Article 22 Guidance aid in restoring legal certainty in the area of below-threshold transactions under EU merger control rules, but there still remain a number of challenges and uncertainties for businesses, in particular when it comes to transactions that do not meet notification thresholds under the Merger Regulation or national merger control rules but which could nevertheless give rise to competition concerns. As such, while the ECJ’s judgment does limit the scope for the European Commission to discretionarily intervene against "killer acquisitions" and other potential anticompetitive mergers, it does not completely close the door on future intervention as other tools remain available to the Commission and national authorities, as outlined in the following. 

Businesses, and particularly those operating in high-tech and innovation-driven industries, should be mindful of the impact of potential merger control or antitrust intervention on timing and deal-certainty, and they should plan transaction processes accordingly, even where no regulatory filings immediately appear to be required.

Call-in powers under national merger control rules

First, businesses should be aware that several Member States have recently introduced so-called "call-in powers" which allow national competition authorities to request, in individual cases, the notification of transactions that otherwise do not meet the general notification thresholds under applicable national merger control rules, but which may give rise to competition concerns. The specific requirements for applying these call-in powers vary from Member State to Member State, but several regimes, including the Danish, provide national competition authorities with broad discretionary powers that effectively allow them to call in almost any transaction that they deem potentially harmful to competition for review.

As of December 2024, around 10 Member States have some sort of call-in powers in place under national law (depending on the exact definition), with additional Member States considering whether to introduce similar measures. As a sign of a continued trend towards additional Member States introducing call-in powers, the Director-General of the Commission's DG Competition also said at a competition law conference in Brussels in late November 2024 that the Commission is "actively encouraging" Member States to adopt call-in measures to allow for continued scrutiny of below-threshold transactions that may be harmful to competition. 

Referrals under Article 22 on the basis of national call-in powers

Second, almost immediately after the ECJ issued its judgment in Illumina/Grail in September, then Executive Vice-President and Commissioner for Competition in the EU, Margrethe Vestager, indicated in a written statement that the Commission would continue to accept referrals made under Article 22 of the Merger Regulation from Member States that have jurisdiction over a concentration under national law, including where such jurisdiction is based solely on call-in powers provided for in national law.

Considering that the ECJ stated in its Illumina Grail ruling that "[d]etermining the competence of the national competition authorities by reference to criteria relating to turnover is an important guarantee of foreseeability and legal certainty", the Commission's firm position that it can lawfully continue to accept referrals where national authorities have jurisdiction only on the basis of very wide call-in powers is arguably doubtful and, at the very least, hardly in the spirit of the ECJ's ruling in Illumina/Grail. 

Nonetheless, on 31 October 2024, the Commission demonstrated that it has no intention to hold back from accepting referrals from national competition authorities whose jurisdiction is conferred solely on the basis of call-in powers under national law as the Commission announced that it had accepted a referral request concerning NVIDIA Corporation's proposed acquisition of Run:ai Labs Ltd. The transaction did not exceed the general notification thresholds in any Member State, but the Italian competition authority, the AGCM, nevertheless decided to require its notification on the basis of the call-in powers provided for in Italian law and to subsequently refer it to the Commission under Article 22 of the Merger Regulation.

Application of Article 102 TFEU (and possibly Article 101 TFEU) to non-notifiable mergers

Third, the ECJ recently established in case C-449/21, Towercast, that it may constitute an abuse of dominance under Article 102 TFEU where a dominant undertaking acquires a competing undertaking and where that transaction is not subject to ex ante merger control under EU or national law if it may nevertheless substantially impede competition. While this judgment has opened the gate for national competition authorities to apply Article 102 TFEU (and possibly Article 101 TFEU) to non-notifiable mergers, there remains uncertainty about the extent to which these rules can be applied, including whether Article 102 can be used for intervening against mergers giving rise to anti-competitive vertical effects (such as in the case of the Illumina/Grail transaction) and whether the Commission itself can also rely on the Towercast doctrine to intervene against anticompetitive mergers, considering that the case concerned only the competence of national competition authorities.

Regardless of these uncertainties, it is reasonable to expect that intervention on the basis of the Towercast doctrine will likely be limited to exceptional cases, not least as a matter of policy. This view has also been expressed by Advocate General, Juliane Kokott, who delivered the AG opinion in the Towercast case, when she recently said in connection with the 20th anniversary of the Merger Regulation that intervention against mergers on the basis of the Towercast doctrine should remain "the absolute exception".

Nevertheless, national competition authorities in France and Belgium have already in a few cases reviewed mergers under Articles 101 and 102 TFEU, highlighting that merging parties do have to factor this in as a real risk where a non-notifiable transaction may potentially give rise to competition concerns. It is however worth noting that neither France nor Belgium currently has national rules that provide for the call-in of below-threshold mergers, and it may reasonable be expected that the Towercast doctrine will be of no or very limited practical relevance in those Member States that have already introduced wide call-in powers as the use of such powers will likely be the preferred option where available.

Want to know more?

If you have any questions, please contact Plesner's EU & Competition Law team