Illumina wins at top EU court – The EU Commission cannot encourage or accept referrals of concentrations without an EU or national dimension

On 3 September 2024, the ECJ delivered its judgment¹ in Illumina's appeal against the General Court's (GC) judgment² confirming the European Commission's (EC) powers to review concentrations under the EU Merger Regulation (EUMR) in circumstances where no Member State has jurisdiction under national law.

The ECJ followed Advocate General (AG) Emiliou's non-binding opinion delivered on 21 March 2023,³ and set aside the GC judgment, annulling the EC's acceptance of jurisdiction. The ECJ's judgment mooted all the other EC decisions in the case (i.e., the prohibition, divestment order, and fine) and the appeals against those decisions, relieving Illumina and GRAIL from paying the €432 million gun-jumping fine imposed last year, amongst other things.⁴ As a result, on 6 September 2024, the EC formally withdrew these enforcement decisions.

• Background
• Wrongful interpretation of the scope of Article 22(1) EUMR
• Final Thoughts

Background

Article 22 Guidance

On 26 March 2021, the EC published new guidance on Article 22 EUMR (the Guidance),⁵ addressing the circumstances in which a Member State may request that the EC accept referral of a concentration over which no Member State has jurisdiction.

The Guidance was intended to enable review of so-called "killer acquisitions", namely those concentrations where the turnover of at least one of the undertakings concerned does not reflect its actual or future competitive potential (e.g., start-ups or recent entrants with significant competitive potential that have yet to generate significant revenues, which represent actual or potential important competitive forces). The Guidance explicitly targeted concentrations that could significantly affect competition in the pharmaceutical and digital sectors.

Referral and review of the Illumina/GRAIL case

The first application of this approach to Article 22 was triggered when the French Competition Authority sought to refer Illumina's acquisition of GRAIL. Since then, the EC has accepted Article 22 referral requests in three further merger cases that were not notifiable in any Member State.

Illumina sought to annul the EC's decision to accept the referral on the basis that the EC did not have the right to accept an Article 22 EUMR referral from a Member State that did not have jurisdiction under its merger control regime. The GC judgment was delivered on 13 July 2022,⁶ supporting the EC's position. On 21 March 2024, AG Emiliou's non-binding opinion disagreed with the GC's findings regarding the meaning and scope of Article 22 EUMR.

The ECJ followed the AG's opinion concluding, in short, that the EC was not authorised to encourage or accept referrals of a proposed concentration without a European dimension from an NCA not competent to review the concentration under its national law.

Wrongful interpretation of the scope of Article 22(1) EUMR

The GC was entitled to not confine itself to an isolated reading of the provision's wording

Without debating the literal interpretation of Article 22 EUMR, the ECJ agreed with the GC's decision not to confine itself to an isolated reading of the provision, rather to take into account the historical, contextual and teleological interpretation of that provision. The ECJ noted that the Courts of the EU are entitled to consider methods of interpretation which are appropriate to clarify the exact scope of a provision.

The 'travaux préparatoires' never envisaged Article 22(1) EUMR as a corrective mechanism

Before diving into the historical interpretation of Article 22 EUMR, the ECJ analysed the admissibility of evidence submitted by GRAIL before the ECJ consisting of documents drawn up in the context of the EUMR's travaux préparatoires. Contrary to the GC's arguments, since the travaux préparatoires directly relate to the scope of EU law, the Court concluded that they are not purely factual matters which should have been raised before the GC (in first instance). As a result, the ECJ concluded that it was able to review them despite its limited jurisdiction on appeal, given that it must be able to analyse, whether on its own initiative or based on evidence, all the documents drawn up in the context of the travaux préparatoires.

The ECJ concluded that none of the historical interpretation analysed by the GC as supporting the EC's interpretation of Article 22 EUMR (e.g. Commission Green Papers of 31 January 1996 and 11 December 2001) support or shed light on an interpretation that would allow Member States with national merger control rules to refer concentrations that fall outside those rules. In addition, the ECJ found that, none of those documents (presented by the EC, the GC, or the parties) envisaged the referral mechanism as a "corrective mechanism" for the effective control of all concentrations with significant effects on the structure of competition in the EU.

The context surrounding Article 22(1) EUMR does not shed light on its precise interpretation

The ECJ went on to conclude that neither Article 352 TFEU (subsidiary powers) nor the other provisions of the EUMR support the EC's position that Article 22 enables it to review a concentration over which neither the EU nor the Member States have jurisdiction. Further, the ECJ ruled that, when interpreted in its context, a referral request under Article 22 cannot be submitted irrespective of the existence or scope of national merger control rules. In addition, the ECJ found that the GC failed to take into account the fact that the EUMR already contains a simplified mechanism to replace turnover thresholds with other criteria, including transaction value, if necessary, nullifying the need for a corrective mechanism.

The objectives of the EUMR do not support an extensive interpretation of Article 22(1)

In relation to the teleological interpretation (of the EUMR's objectives), the ECJ found that the historical and contextual interpretation revealed that Article 22 pursues only two objectives, namely, to enable the scrutiny of concentrations affecting a Member State not equipped with national merger control rules, and to extend the "one-stop shop" principle by avoiding multiple notifications at national level. Neither of these could be used to interpret Article 22 as a corrective mechanism or to enable submission of a referral request irrespective of the scope of national ex-ante merger control rules.

Most importantly, the ECJ found that the thresholds set out in the EUMR are an important guarantee of foreseeability and legal certainty for undertakings targeted by those thresholds. If undertakings were required to informally notify their proposed concentrations to each NCA, as suggested by the EC, it would undermine the effectiveness of the EUMR and the principle of legal certainty.

Ultimately, the ECJ has emphasized the importance of the principle of institutional balance. Because the EUMR contains a simplified mechanism to revise the existing turnover thresholds, even if those thresholds are insufficient to scrutinise certain concentrations, it is the responsibility of the EU legislator to revise them or to include a mechanism enabling the EC to review those concentrations. The EC has over-stepped by extending the scope of Article 22.

Final Thoughts

This ground-breaking judgment is a setback for the EC's ability to review so-called "killer acquisitions" in the digital and life sciences sectors. The EC is now left with three main options, all mentioned by the ECJ in its judgment. First, as already discussed by DG Olivier Guersent, the EC may rely on an ex post review of a concentration under Articles 101 and 102 TFEU, an approach that does not appear to have been a major factor in the EC's 2021 conclusion that there was no need to amend the EUMR's jurisdictional thresholds.

However, it may be challenging for the EC and the NCAs to take Towercast-like decisions at scale, due to the complexity of demonstrating abuse of dominance through concentrations and the time generally taken for such decisions. That said, the French NCA has already expressed its determination to use every means available or necessary to ensure that no concentration harms competition on French territory,⁷ including Articles 101 and 102 TFEU and equivalent provisions in national law.

Second, the EC may revisit its 2021 conclusion that the EUMR thresholds do not need to be revised. The EC was reluctant to reopen the EUMR in 2021, and it is not clear that the EUMR could be reopened without reviving industrial policy debates that the EC has sought to avoid. Recent public positions from key member states including Germany and France suggest that the debate on the protection of national champions against non-EEA players would be reignited.⁸

Third, given that a number of Member States have amended their national rules to enable their national authorities to assert jurisdiction in circumstances where the target has limited or no presence in the EU, the scope for referrals from Member States with jurisdiction is broadening. For example, the national merger control rules in Denmark, Hungary, Ireland, Italy, Latvia, Lithuania, Slovenia and Sweden have been amended to enable the review of certain "below-threshold" concentrations, and the French have announced that they are considering ways to reinforce their rules to enable them to assert jurisdiction over potentially problematic below threshold concentrations.

Finally, the judgment may also affect the effectiveness of Article 14 of the Digital Markets Act (DMA). The Article 14 requirement that gatekeepers inform the EC of planned concentrations (in the digital sector or that enable the collection of data) rests on the assumption that the EC will be able to review those concentrations. If those concentrations are not notifiable in the EU or at Member State level, the EC will likely have to rely on a Member State asserting jurisdiction over, and then referring, "below-threshold" concentrations.

Footnotes