In its judgment of 13 July 2022 the General Court endorsed the EU Commission's revised approach to Article 22 EU Merger Regulation (EUMR) referrals as set out in its March 2021 Guidance. The case relates to an appeal brought by Illumina against the Commission's decision to accept the referral by the French competition authority of its acquisition of GRAIL, despite the transaction not meeting the jurisdictional thresholds under the French merger control regime. Illumina also claimed that France's request to refer the transaction was out of time (as it was made almost six months after the deal was announced on 21 September 2020) and that the Commission infringed the principle legitimate expectation by adopting this approach before its Guidance on its revised approach to Article 22 referrals was in place.
The General Court dismissed the appeal in its entirety, finding that there is nothing in the wording of Article 22 EUMR or in the history of the legislation that stops the Commission from accepting referrals from Member States for a transaction that does not meet their national merger control thresholds. It may have been the Commission's practice of discouraging national authorities from referring cases they did not have the power to review themselves at the time the referral request was made in this case, but that does not mean the Commission was precluded from doing so as a matter of principle.
The Commission's Guidance on Article 22 referrals published in March 2021 now of course clearly sets out the Commission's position in respect of referrals of transactions that fall below national thresholds. The ruling will also be seen as an endorsement of the Commission's revised approach to the Article 22 referral system and can be expected to encourage similar referrals in line with the requirements set out under the Guidance, adding new risks in M&A. Merger parties will therefore need to consider the conditions for referral under Article 22 EUMR, assess referral risk and, in appropriate cases, consider means to mitigate such risks, through informal consultation with competition authorities and the inclusion of appropriate conditions in transaction documents (see our briefing here for more practical guidance).
Background to the case
Article 22 EUMR referrals and guidance on the Commission's revised approach
Under Article 22 EUMR one or more Member States can request the Commission to examine a concentration that does not have an EU dimension and does therefore not meet the jurisdictional thresholds of the EUMR, where that transaction affects trade between Member States and threatens to significantly affect competition within the Member State making the request.
There is nothing in the legislation or guidance to stop Member States from making such a referral for a transaction that does not meet their own national merger control thresholds, but over the years the Commission developed a practice of discouraging referral requests under Article 22 from Member States that did not have jurisdiction over the transaction at stake under their national regimes as it considered that such transactions were not likely to have a significant impact on the internal market.
In March 2021 the Commission published revised Guidance on the Article 22 referral mechanism under which the Commission clarifies expressly that it will now accept referrals from Member States for deals that fall below the domestic jurisdictional thresholds of the referring country, in order to capture more transactions involving nascent competitors and innovative companies. The changes were made as a result of a 2016 Commission consultation that looked, amongst other things, at options to address the issue of so called 'killer acquisitions' through changes to the turnover-based thresholds by adding a new value-based threshold, or expanding the use of Article 22 EUMR to widen the scope for referrals to the Commission.
The Commission concluded that the current turnover thresholds allow it to capture most transactions it should be reviewing, but that encouraging and accepting more referrals under Article 22 EUMR, also where the transaction does not meet the national merger control thresholds, would give it the flexibility to target more concentrations that merit review at EU level, without imposing notification obligations on transactions that do not.
The Illumina/Grail transaction and its referral to the Commission under Article 22 EUMR
In September 2020 Illumina, a global genomics company, announced its acquisition of US-based healthcare company GRAIL, active in the genomic cancer test sector. After the Commission received a complaint about the transaction it reached the preliminary conclusion that it could be the subject of a referral under Article 22 EUMR.
The Commission informed the Member States of the transaction in February 2021, inviting them to submit a referral request. The French competition authority submitted a referral request on 9 March 2021 that was subsequently joined by the Belgian, Greek, Icelandic, Dutch and Norwegian competition authorities.
The Commission accepted the referral request by decision of 19 April 2021. It concluded that a referral of the transaction was appropriate as there were concerns that the merged entity could restrict access to or increase the price of next generation sequencers and reagents to the detriment of GRAIL's competitors active in genomic cancer tests. It also found that GRAIL's competitive significance was not reflected in its turnover, as evidenced by the 7.1 billion US dollar deal value. In reaching its decision the Commission applied, for the first time, its March 2021 Guidance under which it welcomes referrals from Member States of transactions that do not meet the jurisdictional thresholds of their national merger control regimes.
Illumina appealed the Commission's decision accepting the referral request, on the basis that:
- The Commission lacked jurisdiction to accept a referral request under Article 22 EUMR in a case where the referring Member State has no jurisdiction over the transaction under its national merger control regime;
- The French referral request had been made out of time;
- The Commission's approach in this case was in breach of the principles of the protection of legitimate expectations (and of legal certainty).
The General Court's ruling
The Commission's jurisdiction under Article 22 EUMR to accept referrals below the national merger control thresholds
On the issue as to whether or not the Commission lacked jurisdiction to accept a referral request from a Member State where the transaction does not meet the jurisdictional thresholds of its merger control regime, the General Court clearly endorsed the Commission's approach that Article 22 does allow such referrals.
The General Court carried out a detailed analysis of Article 22 EUMR based on a literal, historical, contextual and teleological interpretation.
The General Court notes that the provision sets out four cumulative conditions for authorising the referral of a concentration to the Commission:
- The referral request must be made by one or more Member States
- The transaction subject to the request must satisfy the requirements for a concentration set out in Article 3 of the EUMR without meeting the thresholds for an EU dimension as set out in Article 1 EUMR
- The concentration must affect trade between Member States
- The concentration must threaten to significantly affect competition within the territory of the Member State(s) making the referral request
The wording of the provision does not refer to the scope of the merger control rules of the Member State making the request, or whether it should have a merger control system in place.
Assessing the historical context of Article 22 the General Court notes that the provision was in particular designed for Member States that did not yet have a merger control system in place, but that this did not preclude other Member States from having recourse to the mechanism. There is nothing in the EUMR that indicates that the legislator intended to reserve the referral mechanism for Member States without a merger control regime. Various Green papers and Commission Staff Working papers on the functioning of the EUMR confirm that Article 22 EUMR enables a Member State to refer transactions to the Commission which do not meet the EUMR turnover thresholds but which have significant cross-border effects, irrespective of the scope of the Member State's merger control rules.
On a contextual interpretation, the General Court notes that Articles 4(5) and Article 22 EUMR allow for the referral to the Commission of a concentration that does not have an EU dimension and these provisions are therefore based not on turnover thresholds but on other conditions. The rules governing the referral of concentrations create 'corrective mechanisms', intended to remedy deficiencies inherent in a system based principally on turnover thresholds, providing the Commission with the necessary flexibility to assess concentrations that are likely to significantly impede effective competition in the internal market.
The General Court concludes that to the extent that Article 22 EUMR constitutes a corrective mechanism, it requires clear and precise conditions of application which are based on EU law. Only the interpretation adopted in the Commission's decision accepting the referral ensures the necessary legal certainty and uniform application of Article 22 EUMR in the EU.
In light of the above the General Court concludes that Member States may, under the conditions set out in Article 22 EUMR, make a referral request to the Commission irrespective of the scope of their national merger control rules.
Timing of the French referral request- what is the test for making the transaction "known" to Member States to trigger the required 15 working day deadline for referrals?
Article 22 EUMR requires Member States to make a referral request within 15 working days of the date of notification of the transaction which is the subject of the referral request or, if such notification is not required, from the date on which the transaction was made known to the Member State concerned. Illumina claimed that the referral request by the French competition authority was made outside the 15 working day timeframe, as it was made almost six months after the transaction was publicly announced in September 2020, and the deal had subsequently attracted wide publicity in France and across Europe.
The concept of 'made known' is not further explained in the legislation but the General Court concludes that it consists of 'the active transmission of relevant information to the Member State concerned that enables it to carry out a preliminary assessment of the conditions set out in Article 22(1) EUMR'. On that basis it was the Commission's invitation letter sent to the Member States on the concentration at issue, setting out the reasons why it found that the concentration appeared to satisfy the conditions for referral and inviting the submission of a referral request, that constitutes the concentration being 'made known' within the meaning of Article 22(1) EUMR. The Commission's invitation letter was dated 19 February 2021 and the referral request was submitted by the French competition authority on 9 March 2021. The 15 working day requirement was therefore complied with.
The General Court was nevertheless critical of the Commission's delay in sending the invitation letter to the relevant Member States. Article 22 EUMR does not contain any express time limit for the Commission to inform the Member States, but in line with the general principle of good administration, the General Court recognises that the Commission is required to comply with a reasonable time limit in the conduct of its administrative procedures. This is the case in particular in the context of merger control, given the fundamental objectives of effectiveness and speed underlying the EUMR.
The Commission became aware of the concentration at issue on 7 December 2020 when a complaint was lodged, but only sent the invitation letter 47 working days later, on 19 February 2021. The General Court concluded this was an unreasonable period of time, but as it had not been established that the Commission's failure to comply with a reasonable time limit had affected the appellants' rights of defence, it cannot justify the annulment of the contested decision.
Breach of the principle of legitimate expectation
Illumina and Grail argued that the Commission's decision to accept the referral was in breach of the principle of legitimate expectation, as the Commission's policy at the time was not to accept referral requests for concentrations that did not fall within the scope of the national merger control rules. The appellants refer to a speech made by Commissioner Vestager in September 2020, indicating that the Commission's then policy would continue to apply until it was amended by the publication of the new Guidance on 26 March 2021, and also to some findings and recommendations of the ICN and the OECD.
The General Court recalls that it is settled case law that the right to rely on legitimate expectations presupposes precise, unconditional and consistent assurances originating from authorised, reliable sources given to the person concerned by the competent authorities of the EU. It noted that the findings of the ECN and the OECD on this subject are not EU administrative statements. Also, the Commission retains a considerable margin of discretion on competition policy and Commissioner Vestager's speech did not mention the concentration at issue. In fact the speech referred to a Commission practice of discouraging national authorities from referring cases they did not have the power to review themselves, which does not mean they were precluded from doing so as a matter of principle. Commissioner Vestager also made it clear that this practice was never intended to stop the Commission from dealing with cases that could seriously affect competition in the single market.
The General Court therefore rejected the plea based on legitimate expectation as unfounded, which means Illumina's appeal was dismissed in its entirety.
Illumina has announced that it will appeal the ruling before the Court of Justice of the EU.
Other developments relating to the Illumina/Grail transaction
Meanwhile, the Commission is continuing its investigation of the transaction under the EUMR, which is currently undergoing a detailed Phase II investigation. The Commission opened an in-depth investigation over concerns that Illumina's acquisition of GRAIL could reduce competition and innovation in the emerging market for the development and commercialisation of cancer detection tests based on sequencing technologies. The current deadline for the Commission's Phase II decision is 12 September 2022.
The Commission is also carrying out a separate investigation into gun-jumping by Illumina and GRAIL as Illumina announced on 18 August 2021 that it had completed the acquisition of GRAIL. Although Illumina committed to maintain GRAIL as a separate entity during the Commission's assessment of the transaction, this is likely to amount to a breach of the standstill obligation under Article 7 of the EUMR under which a concentration cannot be implemented until it has been declared compatible with the internal market. On 19 July 2022 the Commission issued a statement of objections alleging that Illumina and GRAIL breached the standstill obligation by implementing the acquisition while the Commission's detailed investigation is still ongoing. This is seen a serious breach under the EUMR and the Commission could ultimately impose fines of up to 10% of the parties' worldwide turnover.
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