On 26 March 2021, the European Commission ("EC") published its "Guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to certain categories of cases" ("Guidance"). Art. 22 of the Merger Regulation ("EUMR") includes a referral mechanism whereby one or more Member States may request the EC to examine any transaction that does not have an EU dimension but affects trade between Member States and threatens to significantly affect competition within the territory of the Member State or States making the request. Driven by concerns that certain competitively significant transactions escape merger control review, the EC, via the Guidance and in contradistinction to its previous policy under Art. 22 EUMR, now actively encourages Member States to refer certain transactions to it even if they do not meet national merger control thresholds (turnover-based or otherwise). This is particularly the case with respect to deals in the digital and pharma sectors which often involve the acquisition of nascent, yet highly promising, competitors. On 13 July 2022, in Illumina v Commission, the General Court of the EU ("General Court" or "Court"), confirmed the EC's competence to initiate an investigation into a transaction referred by a Member State to it under Art. 22 EUMR although that transaction is not notifiable under the requesting Member State's national merger control rules.

These developments arguably seriously undermine the legal certainty traditionally afforded to companies by the EUMR by virtue of the bright-line turnover thresholds and deadlines enshrined therein. In tandem with this significant expansion of the EC's ability to review transactions, companies contemplating the acquisition of smaller companies with significant competitive potential (particularly in the digital and pharma sectors) are therefore advised to exercise caution going forward. The EC taking jurisdiction over the review of a transaction means the standstill obligation applies, i.e. the transaction may not be implemented before it has been cleared by the EC. Where simultaneous signing and closing without more was once realistic for such deals, this is thus no longer always a feasible option as no guarantees can be made that the transaction will not eventually end up on the EC's desk despite it not meeting the EU thresholds. This may also be a harsh lesson learned by Illumina as the EC has sent it a Statement of Objections ("SO") for "gun-jumping" and closing the Grail deal prematurely whilst it was still under review by the EC. If the EC comes to that same conclusion in a final decision, a fine of up to 10% of Illumina and Grail's worldwide turnover could be imposed.


A. Preliminary observations

For many years, a core tenet of the EU's merger control architecture has been that the EC and its Member States cannot concurrently assert jurisdiction over the same transactions. The EC, which sits at the apex of the EU's merger control enforcement structure, has sole competence over concentrations with an EU dimension (the "one-stop-shop" principle). Conversely, the EC cannot, absent the referral mechanisms outlined in the EUMR, assert jurisdiction over transactions that do not have an EU dimension – such transactions are subject to review under applicable Member State merger control law(s). One principal derogation from this bright-line allocation of powers between the EC and its Member States is the referral mechanism enshrined in Art. 22 EUMR. Art. 22 EUMR provides that: "one or more Member States may request the [EC] to examine any [transaction] [...] that does not have a[n] [EU] dimension [...] but [i] affects trade between Member States and [ii] threatens to significantly affect competition within the territory of the Member State or States making the request" ((i) and (ii) are hereinafter referred to as "Art. 22 Conditions)". If a referral request has been made and the Art. 22 Conditions are met, the EC may in its discretion decide whether to examine the transaction at hand. However, where the Art. 22 Conditions are met but the EC has not received a referral request, it may nevertheless, pursuant to Art. 22(5) EUMR, "invite" a Member State or States to make a referral request.

B. Art. 22 EUMR: a rarely invoked provision whose use the EC has historically discouraged

At the time of the EUMR's inception in 1989, the referral mechanism enshrined in Art. 22 was known as the "Dutch clause". This is because the insertion of this provision into the EUMR came at the request of the Netherlands which, at the time, did not have a merger control regime in place. A corollary of this development was that throughout the ensuing years, Art. 22 was generally triggered in situations where a Member State did not have an operational system of merger control review – see e.g. British Airways/Danair (1993) (request by the Belgian Government), RTL/Veronica/Endemol (1995) (request by the Dutch Government), Kesko/Tuko (1996) (request by the Finnish Office of Free Competition), and Blokker/Toys "R" Us (II) (1997) (request by the Dutch Government).

All Member States have since, however, established a national merger control regime (with the exception of Luxembourg). In view of this development, the EC has traditionally sought to discourage Member States from requesting the referral of transactions under Art. 22 for which they did not have original jurisdiction on the basis of their domestic thresholds. This practice was principally based on the notion that such transactions were limited in size and were generally unlikely to have a significant impact on the EU internal market. As such, the EC's practice in recent years has been limited to referrals of transactions that fell under the jurisdiction of at least one referring Member State. With that said, even in such latter scenario, the EC has sought to constrain the use of Art. 22 in all but the most exceptional cases given the risk of "additional cost and time delay for the merging parties". To date, therefore, referrals pursuant to Art. 22 have been rare – some notable recent examples (prior to issuance of the Guidance) include Johnson & Johnson/Tachosil (2020) (withdrawn because of regulatory concerns), and Apple/Shazam (2018). The EC's traditional reticence towards the invocation of Art. 22 is however seemingly changing with the promulgation of the Guidance and the Illumina v Commission judgment.


A. Preliminary observations

Over the last years, a principal concern of the EC has been the wave of mergers involving companies that play, or may develop into playing, a significant competitive role on the market despite generating little or no turnover at the time of the merger. This development has been found to be particularly significant in (i) the digital economy, where services regularly launch with the aim of developing a significant user base and/or commercially valuable data inventories, before the business is monetised and (ii) in the pharma sector, where transactions have involved innovative companies conducting R&D with strong competitive potential, even if such companies have not yet finalised, let alone exploited commercially, the results of their R&D activities. Because of the absence of, or low, turnover of one of the parties to such transactions, they have invariably escaped merger control review.

Whether, therefore, the turnover-based thresholds of the EUMR were sufficient to capture transactions that would in fact merit review by the EC has in recent years been the subject of vociferous debate – particularly since Facebook's (now, Meta) 2014 acquisition of WhatsApp for USD 19 billion and which only fell to be assessed by the EC because the transaction was notifiable in three Member States (referral pursuant to Art. 4(5) EUMR). Post Facebook/WhatsApp, and to address the risk of competitively significant transactions escaping its review, the EC therefore entertained the idea of introducing a new complementary threshold based on the value of the merger – as both Austria and Germany did in 2017. However, this idea was ultimately shelved by the EC in light of the difficulties of setting a value-based threshold at the right level and the risk that the clarity provided by the turnover-based thresholds of the EUMR would be diminished. Instead, the EC has deemed it more appropriate to reverse its historical policy of discouraging the referral of cases under Art. 22 when a Member State does not have jurisdiction. With the adoption of its Guidance, the EC now actively encourages Member States to refer mergers to it, particularly, but not necessarily limited to, mergers in the healthcare and tech sectors – witness in this respect the French and Austrian Competition Authorities' requests for, and the EC's acceptance of, a referral of the Illumina/Grail and Meta/Kustomer transactions, respectively. That said, not every EU national competition authority ("NCA") is willing to heed the EC's call. Notably, and contrary to the approach taken by the Austrian, Belgian, French, Dutch and other EU NCAs, the German Competition Authority's practice is to not refer transactions, that fall below its national thresholds for review, to the EC.

B. Candidate cases – mergers in the digital and pharma sectors a priority

The EC encourages, and is more amenable to accepting, referrals in (certain types of) cases where the referring Member State does not have initial jurisdiction over the case, but where the Art. 22 Conditions are met. By way of elaboration on the Art. 22 Conditions enshrined in the EUMR, the Guidance provides that the EC will in particular assess whether the transaction "may have an influence, direct or indirect, actual or potential, on the pattern of trade between Member States" taking into account, for example, the development and implementation of R&D projects the results of which, if successful, may be marketed in more than one Member State. As such, candidate transactions for referral are particularly, although not necessarily limited to, those where one party:

  • Is a start-up or recent entrant with significant competitive potential that has yet to develop or implement a business model generating significant revenues (or is still in the initial phase of implementing such business model);
  • Is an important innovator or is conducting potentially important research;
  • Is an actual or potential important competitive force;
  • Has access to competitively significant assets (such as raw materials, infrastructure, data or intellectual property rights);
  • Provides products or services that are key inputs/components for other industries.

In exercising its discretion whether to encourage or accept a referral, the EC may also take into account whether the value of the transaction is particularly high compared to the current turn-over of the target. A value-based threshold is therefore (cleverly) introduced through the backdoor of Art. 22 without the need for legislative change and therefore renders nugatory any further discussion on whether the EUMR should have a value-based threshold.

C. Procedure – significant deal uncertainty on the cards

The EC will cooperate closely with the Member States to identify transactions that may constitute potential candidates for referral under Art. 22 but do not trigger a notification under applicable Member State law. Merging parties may voluntarily approach the EC with a view to obtaining an "early indication" of whether a proposed transaction represents a candidate for referral ("Early Indication"). Conversely, where the EC becomes aware of a transaction considered to meet the criteria for an Art. 22 referral, it may, as it did in Illumina/Grail, inform the Member State(s) potentially concerned and "invite" them to make a referral request – a decision whether to refer lying within the discretion of such Member State(s). Further, third parties are encouraged to draw the EC's and the Member State's attention to potential candidate cases (and third parties may be able to do so on the basis of relatively scant information) – in fact, this is also exactly what happened in Illumina/Grail: the EC invited the Member States to make a referral request after first having received a complaint about the transaction. The French competition authority obliged and other Member States subsequently requested, each in its own right, to join the referral request.

If a referral request is being considered, the EC will inform the merging parties thereof "as soon as possible". While the merging parties are not required to delay closing upon receipt of such information, they may choose to do so until a decision has been rendered on whether a referral request will actually be made. Once the merging parties have been informed by the EC of a referral request, however, they cannot close the transaction and must respect the standstill obligation, i.e. wait to implement the transaction until EC clearance is received.

Under the Guidance, a Member State that does not have jurisdiction to review the relevant merger must make a referral request within 15 working days of the merger being "made known" to it. This notion is (arguably unacceptably) vague – although some clarification has been received by virtue of Illumina v Commission (which is discussed further below). In any event, the notion clearly goes beyond mere knowledge of the merger. In this respect, the Guidance states that the Member State should possess sufficient information to make a preliminary assessment as to the existence of the criteria relevant for the assessment of the referral. Once a referral request has been made, the EC will "without delay" inform the other Member States and the merging parties thereof, and other Member States may then join the initial request within 15 working days of being informed by the EC of the initial request. At the latest 10 working days thereafter, the EC may decide to assert jurisdiction to examine the impact of the transaction within each of the Member States for which the referral request is accepted. If the EC does not take a decision within this period, it will be deemed to have adopted a decision to review the transaction in accordance with the request.

While the referral is subject to the aforementioned deadlines, it bears note that a transaction that has already been closed does not preclude a Member State from requesting a referral. That being said, the EC will generally not consider a referral appropriate where more than six months after closing has passed – though a later referral cannot be ruled out depending on the magnitude of any potential competition concerns, for example. Further, where a transaction has already been notified in one or more Member States that did not request a referral (or join such initial request) this may constitute a factor that militates against the EC accepting a referral.


A. Procedural background

On 21 September 2020, Illumina, an American company specializing in genomic sequencing, announced its intention to acquire sole control of Grail, an American biotechnology company which relies on genomic sequencing to develop cancer screening tests (the "Transaction").

The Transaction was not notified to the EC nor to any of the EU or EFTA Member States as it did not meet the EUMR or any EU or EFTA Member State thresholds. However, on 7 December 2020, the EC received a complaint concerning the Transaction. The EC subsequently reached the preliminary conclusion that the Transaction appeared to satisfy the Art. 22 Conditions for referral. As a consequence, the EC sent a letter to the Member States on 19 February 2021 (the "Invitation Letter") to inform them of the Transaction and to invite them to submit a referral request under Art. 22. The French competition authority obliged and other Member States subsequently requested, each in its own right, to join (notably but unsurprisingly absent: the German competition authority, given its policy to not refer to the EC transactions that do not fall within its national thresholds for review).

Illumina and Grail were informed of the referral request by the EC on 11 March 2021 (the "Information Letter"). The EC ultimately, on 19 April 19, 2021, accepted the referral request, along with the respective requests to join (the "Contested Decisions"). Following the EC's decision, Illumina, supported by Grail, filed suit before the General Court (against the Contested Decisions and the Information Letter).

B. The judgment

On 13 July 2022, the General Court dismissed Illumina's action in its entirety ("Judgment").

(i) Alleged lack of EC Competence

Illumina argued that the EC lacked the competence to initiate, under Art. 22 EUMR, an investigation into a transaction referred to it under Art. 22 EUMR by a Member State when that transaction is not notifiable under the requesting Member State's national merger control rules.

The General Court dismissed this argument. The Court held that the wording of Art. 22 EUMR, specifically, the use of the expression "any transaction", makes it clear that a Member State is entitled to refer any transaction which satisfies the Art. 22 Conditions to the Commission, irrespective of the existence or scope of national merger control rules. In its Judgment, the General Court also referred to the objective of the EUMR, which is "to permit effective control of all [transactions] with significant effects on the structure of competition in the European Union" and that while the EC's power of examination depends primarily on the exceeding of the turnover thresholds laid down in the EUMR, these thresholds are supplemented "with rules governing the referral of [transactions] which must constitute 'effective corrective mechanisms." Those mechanisms create a subsidiary power of the EC which "confers on it the flexibility necessary to achieve the objective of that regulation, which is to permit the control of [transactions] likely significantly to impede effective competition in the internal market." This could indeed be the case for transactions that are "likely significantly to impede effective competition in the internal market which, because the turnover thresholds have not been exceeded, would otherwise escape control under the merger control systems of both the European Union and the Member States."

(ii) Alleged Belated Request of the Referral

Illumina also argued that the referral of the Transaction was requested belatedly and that the EC's delay in sending the Invitation Letter undermined the principle of legal certainty and the right to good administration.

The General Court dismissed Illumina's argument that the referral request was submitted out of time, and by doing so, provided some more clarity around the "made known" concept.

The phrase "made known to the Member State concerned" in Art. 22 EUMR – which constitutes the starting point of the 15 working day time limit for submitting the referral request (in a situation where the transaction does not require a notification) – "requires the relevant information to be actively transmitted to that Member State, enabling it to assess, in a preliminary manner, whether the conditions for a referral request under that article have been satisfied." The General Court found that the Invitation Letter met these conditions (and thus that the time limit was complied with as the Invitation Letter was sent on19 February 2021 and France's referral request was submitted on 9 March 2021). It is thus clearly not sufficient to trigger the 15 working day limit by simply becoming aware of the transaction via publicly available information, such as press releases – which is what Illumina tried to argue.

Illumina nevertheless argued, in the alternative, that the EC's delay in sending that letter was contrary to the fundamental principle of legal certainty and to the obligation to act within a reasonable time under the principle of "good administration". In principle, the General Court agreed as it took 47 working days from the time the EC became aware of the Transaction for it to send the Invitation Letter. The General Court referenced to the 25 working days the EC ordinarily has when examining a transaction in phase I, holding that "in view of the fact that the [EC] must, where appropriate, carry out a fairly comprehensive substantive examination of the [transaction] during that phase, it can reasonably be expected that an examination preceding the sending of an invitation letter under Article 22 [EUMR], which implies only a preliminary assessment of the criteria set out in paragraph 1 of that article, does not exceed such a period of 25 working days."

Despite this finding, the General Court recalled that the infringement of the reasonable time principle, justifies the annulment of a decision taken at the end of an antitrust administrative procedure only in so far as it also constitutes an infringement of the rights of defence of the undertaking concerned. As Illumina, according to the General Court, failed to demonstrate that was the case here – inter alia because it was the Contested Decisions, and not the Invitation Letter, which adversely affected them, and in relation to which the undertakings concerned had the right to be heard – the General Court's findings in relation to the infringement of the reasonable period of time principle did not have any consequences.

(iii) Alleged Breach of the Principles of the Protection of Legitimate Expectations and Legal Certainty

Illumina's final argument was that the EC infringed the principles of legal certainty and the protection of legitimate expectations, since the Vice-President of the EC had stated that the EC's policy would not change until the Guidance was in place. Also this argument was dismissed by the General Court, which held that the right to rely on the principle of the protection of legitimate expectation presupposes that precise, unconditional and consistent assurances originating from authorised, reliable sources have been given to the person concerned by the competent authorities of the European Union – which was not the case here.


Transactions involving nascent competitors – especially in the digital economy and pharma sectors – are now firmly in the EC's crosshairs, as evidenced by the first two cases being referred under Art. 22 EUMR since the Guidance was issued: Illumina/Grail (pharma) and Meta/Kustomer (digital). As such, mergers that until recently were unlikely to face antitrust scrutiny because of the absence of, or low, turnover of the target now may be referred upwards to the EC for merger control review. Simultaneous signing and closing without more in certain types of cases is no longer a realistic option. Indeed, a potential eight-week delay may now have to be factored into any deal timeline in certain types of nascent competitor acquisitions. Further delays cannot be ruled out given that the starting point which triggers the 15 working day period to make a request for referral is counted from the moment a merger is "made known" to the Member States and will thus depend on the specific circumstances of the case. Moreover, there is always the risk that the transaction in question will be referred to the EC post-closing. It is therefore safe to say that the Guidance has instilled a considerable degree of uncertainty into the EU merger control regime and, by way of logical corollary, into dealmaking. Ordinarily, prior to or around signing of a transaction, an assessment is made whether merger filings in or across the EU (and/or elsewhere) are needed. However, given the developments around Art. 22 EUMR, guarantees can no longer be made that the transaction will not eventually end up on the EC's desk. This obviously has significant consequences in relation to the timing and implementation of the deal (given the standstill obligation – which prohibits the deal from being implemented before clearance has been received) and will need to be carefully factored in.

With this risk on the horizon, and with a view to avoiding (potentially significant) business disruption, increased prudence is called for. Merging parties may wish to approach the EC pre-emptively regarding their intended transaction with a view to soliciting an Early Indication from the EC. This is important not only in view of deal timing implications, but an upward referral has in the past often required remedies as a quid pro quo for clearance. On the other hand, the Guidance may also be the bearer of gifts for third parties. Third parties that have misgivings about a transaction which, up until now, would not have been reviewed and which, absent review, may have a negative impact on their business may see strategic merit to informing the EC of a candidate case with a view to picking up any "low-hanging fruit" as a potential purchaser for any remedies that are offered. The risk of third-party intervention should therefore also be factored into any assessment of whether to approach the EC for an "Early Indication". Companies that blindly close a transaction involving a nascent competitor – particularly in the digital and pharma sectors – in the hope that it will fly under the enforcement radar do so at their peril. Caution is therefore the order of the day.

Although Illumina v Commission seemingly quashes the hopes of those that perhaps thought the General Court would scale back the EC's powers, Illumina has since appealed the Judgment, so the saga is not entirely over yet. This is a sentiment shared by the German Competition Authority, with its president, Andreas Mundt, stating in August 2022 that the German Competition Authority will await the European Court of Justice's judgment before possibly changing its practice in relation to Art. 22 EUMR. Watch this space.

Originally published by The Legal 500 .

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