The European Court of Justice annulled the European Commission's rejection decision on US based Illumina Inc. ("Illumina") and US based Grail L.L.C ("Grail") based on Article 22 of the EU Merger Regulation1 ("EUMR") on the grounds that the transaction in question did not meet the national merger thresholds. This decision of the Court revitalised the debate on the threshold system in terms of notification of killer acquisitions in merger and acquisition transactions. Türkiye, on the other hand, introduced a different merger threshold system in 2022. In this context, this article will first provide background on the Illumina Grail case. Then, the arguments in the Court's judgement will be discussed. Finally, the threshold systems in EU Member States and the new threshold system for technology undertakings in Türkiye will be mentioned.
Background of the Case
In 2016 and 2017, the European Commission evaluated whether the turnover-based thresholds in the EUMR should be complemented with a value-based threshold and decided that the value-based threshold should not be applied. Afterwards, the Commission published Guidance on the application of the referral mechanism set out in the Article 22 of the EC Merger Regulation2 on 26 March 2021, stating that regardless of the jurisdiction of national competition authorities to examine the case, the Commission will consider mergers worthy of examination at EU level.
According to the Guidance, in the pharmaceutical and other sectors, where innovation is an important parameter of competition, innovative companies that conduct research and development projects and have strong competitive potential are involved in transactions, even if they have not yet finalised, still less commercialised, the results of their innovation activities. Similar considerations apply to companies with access to or influence over competitively valuable assets such as raw materials, intellectual property rights, data or infrastructure. For this reason, the Commission is of the view that the transaction threshold can be utilized as the merger threshold therein.
In the Guidance, the Commission also aims to encourage and recognise referrals in certain circumstances where the referring Member State does not have original jurisdiction over the case but where the Article 22 criteria are met.
As the dates turned 21 September 2020, Illumina, an American company specialising in genomic sequencing, publicly announced its intention to acquire Grail, an American biotechnology company that develops cancer screening tests based on genomic sequencing.
Although this transaction did not trigger the EUMR or any other EU or EFTA Member State threshold, the Commission received a complaint about the transaction on 7 December 2020 and ultimately decided that the transaction met the requirements of Article 22 of the EUMR. Thereafter, the Commission notified the Member States to submit a referral under Article 22. Initially the French, then the Belgian, Icelandic, Greek, Dutch and Norwegian competition authorities submitted referrals.
On 19 April 2021, the Commission accepted the national competition authorities' referral proposals on the grounds that access to next-generation sequencers would be restricted and prices would increase, to the detriment of Grail's competitors active in genomic cancer testing.
After the appeal, the General Court, upholding the Commission's decision as lawful, concluded that a transaction without a European dimension but which is the subject of a referral request made by a Member State is within the competence of the European Commission pursuant to Article 22 EUMR, even if it has not been notified in that Member State. Lastly, on 3 September 2024, the Court annulled the Commission's decision and concluded that transactions that do not exceed the country thresholds cannot be examined.
Arguments of the General Court and the Court of Justice
In the General Court's assessment, it was first stated that, in accordance with the principle of delegation of competences referred to in Article 4(1) Treaty on European Union3, where the turnover thresholds set out in Article 1 ECMR are not exceeded, a concentration not falling within the scope of that regulation will by default be within the competence of the Member States. Therefore, according to the General Court, in terms of EU law, they will always be entitled to bring a claim under Article 22 of this Regulation.
On the other hand, the General Court held that the interpretation of Article 22 EUMR as providing that a Member State may request the referral of a concentration under that provision, irrespective of the existence or scope of its national rules on the ex-ante control of concentrations, is compatible with the principle of subsidiarity. In particular, this interpretation ensures that the provision in question constitutes an 'effective remedial mechanism' within the meaning of Article 11 of this Regulation in the light of this principle, protecting the interests of Member States. It will also ensure that a case is dealt with by the most appropriate authority in the light of that principle, in accordance with Article 14 of the Regulation.
Finally, the General Court held that the referral mechanism under Article 22 of the EUMR relied on by Illumina constitutes only a subsidiary competence which, having regard to the function of Article 22 as a 'corrective mechanism', enables the Commission, examining at the request of one or more Member States, in certain special cases and under very specific circumstances, a concentration which, despite its cross-border effects, does not exceed these thresholds.
However, the Court did not accept the assessments made by the Commission and the General Court based on legal interpretation methods. According to the Court, historical and contextual interpretations do not support the conclusion that Article 22 EUMR authorises the Commission to examine a concentration that does not meet the transfer threshold, irrespective of whether the transaction in question falls within the merger rules of the Member State requesting the referral.
Regarding the teleological interpretation, the Court emphasised that the EUMR introduced the principle of a 'one-stop-shop' for undertakings to satisfy their need for legal certainty. As for the historical interpretation, it reveals that the purpose of the mechanism, also known as the 'Dutch Charter', is to allow for the examination of concentration that may distort competition locally, where the Member State does not have any national merger control system. Therefore, it is stated that this mechanism is not intended to be seen as a 'corrective mechanism' to address deficiencies in the merger control system, mainly based on turnover thresholds.
As a result, the Commission's interpretation of Article 22 EUMR would have the potential to undermine the efficiency, predictability and legal certainty which, according to the Court, should be guaranteed to the parties.
Last but not least, the Court finally suggested that if Member States are concerned about developments involving technology companies, they may lower their merger thresholds to be able to supervise such transactions.
Transaction Value Thresholds
The Illumina case will lead to a jurisdictional obstacle especially in the supervision of killer acquisitions. This is because the turnover of start-ups is likely not to meet the turnover thresholds of Member States. Nevertheless, transaction value thresholds appear to be a serious solution as mentioned in the Guidance4. At this point, two country practices should be mentioned.
Firstly, Article 9, paragraph 4 of the Austrian Cartel Act5 states that the transaction threshold requiring notification is EUR 200 million in Austrian competition law. Secondly, in Germany, Article 35, paragraph 1 of the Act against Restriction of Competition6 sets the threshold at EUR 400 million. The Austrian and German competition authorities have issued a joint guideline upon the agenda.
2022 Amendment in Turkish Merger Regulation Regarding Thresholds
In the Turkish legislation, certain amendments were implemented in the Regulation No. 2010/4 on Mergers and Acquisitions Requiring Authorisation from the Competition Board ('Merger Regulation')7 on this issue in 2022, including the novel threshold targeting technology undertakings.
Prior to the amendments, there was no specific threshold regulation for technology undertakings. With the amendment, the threshold of 30 million TL was increased to 250 million TL, the threshold of 100 million TL was also increased to 750 million TL and the threshold of 500 million TL was raised to 3 billion TL, and it is stated in the Communication that the mentioned threshold limitations will not be applied in the mergers and acquisitions of technology companies.8
According to Article 4, paragraph 1 of the Communication, technology undertakings are defined as "undertakings or related assets operating in the fields of digital platforms, software and game software, financial technologies, biotechnology, pharmacology, agricultural chemicals, and health technologies," while Article 7, paragraph 2 states that "in transactions concerning the acquisition of technology undertakings operating in the Turkish geographical market, engaging in R&D activities, or providing services to users in Turkish, the thresholds specified in subparagraphs (a) and (b) of the first paragraph shall not be applied." It is understood that no revenue threshold will be required for the target undertaking, provided that it is a technology undertaking.
The Turkish Competition Board ("TCA") has applied this threshold in two recent judgements. In the case of the indirect acquisition of sole control of Synlab AG and its subsidiaries by Fifth Cinven Fund through Ephios Luxembourg S.àr.l.9, TCA concluded that the transaction is subject to authorisation regardless of the thresholds as SYNLAB operates in the field of biotechnology and health technology in Türkiye and therefore qualifies as a technology undertaking. In another decision,10 it was concluded that the acquisition of a certain percentage of shares and sole control of GIMV NV by WorxInvest NV is subject to TCA authorisation without being issued to turnover thresholds since GIMV operates in the sectors of software, digital platforms, biotechnology, pharmacology and health technologies and therefore falls within the scope of a technology undertaking.
The purpose of these decisions and the change introduced by the TCA has been to prevent potential anti-competitive concerns that could arise from revenue thresholds. Thus, it has been aimed to extend the investment process by broadly interpreting revenue thresholds to cover all investments of undertakings operating in the market.
Conclusion
The Illumina/Grail case has been of critical importance in terms of the application of Article 22 of the ECMR. Due to the finalization of this case, the Commission's policy of reviewing mergers below the threshold has become unlawful. If the Commission is not authorized to review a transaction under its national laws, it will no longer be able to accept referrals from Member States. On the other hand, as mentioned, the Commission may resort to alternative methods, such as introducing a transaction value threshold. Meanwhile, as seen in Turkish legislation, disregarding thresholds in transactions involving technology companies stands out as an important solution.
Footnotes
1. Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation) : http://data.europa.eu/eli/reg/2004/139/oj
2. Communication from the Commission Guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to certain categories of cases 2021/C 113/01, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52021XC0331%2801%29
3. Consolidated version of the Treaty on European Union, http://data.europa.eu/eli/treaty/teu_2012/oj
4. Communication from the Commission Guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to certain categories of cases 2021/C 113/01
5. Federal Act against Cartels and other Restrictions of Competition (Cartel Act 2005 – KartG 20052 ) Original version: Federal Law Gazette I No. 61/2005 (NR: GP XXII RV 926 AB 990 p. 112. BR: AB 7309 p. 723.)
6. Competition Act in the version published on 26 June 2013 (Bundesgesetzblatt (Federal Law Gazette) I, 2013, p. 1750, 3245), as last amended by Article 1 of the Act of 25 October 2023 (Federal Law Gazette I, p. 294)
7. Communication on Mergers and Acquisitions Requiring Authorisation from the Competition Board (Communication No: 2010/4), https://www.mevzuat.gov.tr/anasayfa/MevzuatFihristDetayIframe?MevzuatTur=9&MevzuatNo=14354&MevzuatTertip=5
8. https://www.resmigazete.gov.tr/eskiler/2022/03/20220304-4.htm
9. Decision of the Turkish Competition Board dated 23.11.2023 and numbered 23-54/1038-373
10. Decision of the Turkish Competition Board dated 21.02.2024 and numbered 24-09/154-64
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