On 3 September 2024, the Courtroom of Justice of the European Union (‘the Courtroom’) handed down its extremely anticipated judgment within the Illumina case. The Grand Chamber annulled the six choices of the Fee by which it accepted the referral by six nationwide competitors authorities of the Illumina/Grail merger underneath Article 22 of Regulation 139/2004 (‘EUMR’). It held {that a} Member State is required to have jurisdiction over a focus to refer underneath Article 22 of EUMR.
The Illumina/Grail merger, valued at USD 8 billion, was not topic to notification on the European Union or nationwide degree due to Grail’s restricted turnover within the EEA. Due to this fact, not one of the referring Member States had jurisdiction over the transaction. Within the deal, Illumina, the main supplier of next-generation sequencing (NGS) methods for genomic evaluation, acquired Grail, an organization centered on growing most cancers detection applied sciences utilizing Illumina’s NGS methods. France referred the merger to the Fee simply earlier than the brand new referral coverage was printed, with a number of different Member States becoming a member of the request. The Fee blocked the merger, citing issues that Illumina could be incentivised to foreclose Grail’s opponents, who additionally depend on Illumina’s NGS methods.
With the judgment, the Courtroom rejects the validity of the Fee’s new coverage on referrals underneath Article 22 of the EU Merger Regulation. Whereas the Courtroom’s vital stance on the Fee’s new referral coverage is welcomed for addressing issues over added authorized uncertainty and the elevated burden on the merging events, this submit outlines that the Courtroom’s discovering is tough to reconcile with the historic and broader function of Article 22 of EUMR. The judgment marks a setback for the Fee’s try and bridge the perceived enforcement hole left by mergers under merger management thresholds with competitors issues. It forces the Fee again to the drafting board to revisit its strategy to addressing the enforcement hole.
1. The Fee’s New Referral Coverage
In its authentic function, the referral mechanism enabled Member States with out merger management legal guidelines to refer transactions with vital competitors issues within the referring Member State’s territory and an affect on cross-border commerce to the Fee. This mechanism got here on the request of the Netherlands, which didn’t have a nationwide merger management regime till 1998. Due to this fact, Article 22 EUMR has been nicknamed the ‘Dutch clause’. As practically all Member States, besides Luxembourg, have since carried out merger management legal guidelines, the mechanism’s meant use has misplaced a lot of its relevance. This, mixed with the assumption that mergers under the thresholds are unlikely to have cross-border results, has led to the Fee discouraging referrals of such transactions (see SWD 2021 para 150).
Issues concerning the effectiveness of the EUMR’s thresholds emerged after a number of high-value transactions escaped scrutiny by the Fee as they didn’t meet the turnover thresholds regardless of having a big affect in the marketplace. A first-rate instance is Fb’s USD 19 billion acquisition of WhatsApp, which didn’t meet the EUMR’s turnover standards and was initially not reviewed by the Fee. The Fee might overview the merger solely after a referral underneath Article 4(5) EUMR. Whereas the transaction didn’t meet the EUMR’s turnover thresholds, it was notifiable in no less than three Member States, permitting the events to request a referral to the Fee underneath Article 4(5) EUMR.
This prompted a overview of the jurisdictional features of the EUMR, because it turned clear that turnover thresholds couldn’t seize mergers with probably vital results on competitors within the digital and pharmaceutical sectors the place conventional metrics like turnover could not replicate an enterprise’s aggressive potential. Conventional metrics like turnover usually fail to replicate an organization’s aggressive potential in these sectors. Within the digital sector, many acquired corporations are start-ups with promising however not but market-ready know-how, or companies possessing invaluable datasets constructed by way of free choices. Equally, within the pharmaceutical trade, corporations usually develop pipeline merchandise that solely generate turnover after gaining regulatory approval.
The Fee selected to not suggest an modification to the thresholds by introducing a transaction-value-based threshold, citing its ineffectiveness in capturing all concentrations with potential competitors issues (SWD 2021, para 112-113). As a substitute, it opted to depend on the prevailing Article 22 referral mechanism to deal with the enforcement hole, aligning with the suggestions from the 2019 advisory report.
By its new coverage, the Fee aimed to deal with its incapability to seize and overview so-called ‘killer acquisitions’. Initially, the time period ‘killer acquisition’ referred to the concept that undertakings purchase smaller opponents to stop future potential competitors. Nonetheless, the time period is now used extra broadly to discuss with mergers that increase competitors issues however fall under merger management thresholds, e.g. the acquisition of progressive start-ups with little to no turnover.
The Fee’s reassessment of the referral mechanism was mirrored in its up to date steerage on Article 22 EUMR referrals. Beneath the brand new referral coverage, Member States have been inspired to refer mergers to the Fee even when they didn’t meet nationwide merger thresholds, offered there have been prima facie competitors issues and cross-border results. This was thought of a ‘U-turn’ to the Fee’s earlier discouragement of referrals for mergers that fell under nationwide merger management thresholds (Steering Paper, para 8).
The brand new referral coverage was met with speedy criticism and was challenged in an enchantment to its first utility, the Illumina/Grail merger. Illumina sought to annul the Fee’s determination to just accept the referral, arguing that the Fee couldn’t settle for a referral request from a Member State with no jurisdiction over the focus underneath Article 22 EUMR. Within the preliminary enchantment, the Common Courtroom sided with the Fee, concluding {that a} contextual and teleological interpretation of Article 22 helps its perform as a corrective mechanism to deal with the deficiencies of the EUMR’s thresholds. On this corrective mechanism, any focus would be capable to be referred to the Fee, regardless of being notifiable or not on the Member State degree.
Illumina appealed the Common Courtroom’s judgment, arguing that the Common Courtroom erred in legislation in its interpretation of Article 22 EUMR and that it didn’t accurately have in mind different goals sought by the EUMR, specifically the ideas of authorized certainty, proportionality, and subsidiarity (see the current judgment, paras 69-80).
2. The Courtroom’s Illumina judgment
Opposite to the Common Courtroom’s view, the Courtroom concluded {that a} historic, contextual, and teleological interpretation doesn’t assist Article 22 EUMR as a corrective mechanism for threshold deficiencies. As a substitute, the Courtroom states that the referral mechanism has two goals. First, its authentic function, permitting Member States with out merger management legal guidelines to refer instances that considerably affect competitors within the referring Member State’s territory and have cross-border results. Second, with the 1997 modification of the EUMR, correcting the allocation of instances between the Fee and Member States (para 199).
The Courtroom states that Article 22 EUMR is meant to permit the referral of instances to the Fee when it’s higher positioned to overview them, thereby stopping a number of filings and preserving the ‘one-stop-shop’ precept. In these instances, a Member State transfers its means to overview the focus to the Fee. Following Advocate Common Emiliou’s reasoning that ‘nobody can provide what they don’t have’ (see the Opinion para 65), the Courtroom concluded {that a} Member State should have jurisdiction over a merger to refer it underneath Article 22 EUMR (paras 179-180). Due to this fact, the Fee can not settle for referrals under nationwide merger management thresholds.
Solely Member States with out merger management legal guidelines could refer concentrations exterior their jurisdiction to the Fee, reflecting the unique intent of the referral mechanism. The Courtroom reaffirmed that Article 22 EUMR permits such Member States to refer concentrations (para 199); at this time, this solely issues Luxembourg.
The Courtroom emphasises that the EUMR goals to stability a number of key goals: the necessity to assert efficient management over concentrations which will hurt competitors, the clear allocation of instances between the Fee and the Member States, and the institution of an efficient and predictable system. The thresholds set inside the Regulation are thought of to be of ‘cardinal significance’ in attaining the latter two goals, as they allow merging events to find out whether or not a notification is required and, if that’s the case, which authority is answerable for the overview (paras 203-204 and 208-209).
The Fee’s new referral coverage upsets this stability by requiring casual notifications to every nationwide competitors authority (‘NCA’) and introducing ambiguous procedural necessities with which merging events should comply (paras 205 and 210). Furthermore, extending the Fee’s overview powers, as facilitated by its new referral coverage, to probably embody all concentrations challenges the institutional stability (para 215). The Courtroom underscores that it’s solely inside the purview of the EU legislature to broaden the Fee’s powers. It emphasises {that a} corrective mechanism for deficiencies in jurisdictional thresholds exists inside the EUMR. Articles 1(4) and 1(5) EUMR grant the Council the flexibility to amend these thresholds upon a proposal from the Fee if deficiencies within the thresholds seem (paras 183 and 216).
The Courtroom suggests a extra distinguished function for Member States in addressing the enforcement hole. It highlights that Member States could decrease their nationwide merger management thresholds or invoke Article 102 TFEU, as per the Towercast rationale, to deal with any gaps within the EU merger management framework associated to the existence of ‘killer acquisitions’ (paras 214 and 218).
3. Competent To Refer?
The Fee’s new referral coverage has been criticised for growing the burden on merging events and including authorized uncertainty to proposed concentrations. In opposition to this backdrop, the Courtroom’s critique of the Fee’s coverage is a constructive improvement. Nonetheless, as I’ll exhibit, the requirement for a Member State to be competent in referring a focus is inconsistent with its historic intent and a broader view of its goal.
The Courtroom’s discovering {that a} Member State should have jurisdiction to refer a focus is tough to reconcile with the historic goals of Article 22 EUMR. As confirmed by the Courtroom in Illumina, a Member State with out merger management legal guidelines can refer any focus to the Fee. This could point out that even with out jurisdiction, a Member State might nonetheless meet the necessities of Article 22(1) EUMR and be capable to refer a merger regardless of competence. This certainly doesn’t assist the Fee’s interpretation of Article 22 EUMR as a corrective mechanism for threshold deficiencies. Nonetheless, it casts severe doubt on the necessity for competence over a focus within the spirit of ‘you can not give what you don’t have’.
In its interpretation of Article 22 EUMR as a corrective mechanism solely for case allocation, thus necessitating competence, the Courtroom seems to ignore its broader goal. Recital 11 of the EUMR and the Fee Discover on Case Referrals make clear that the referral mechanism acts as a corrective mechanism for the precept of subsidiarity offered authorized certainty and the ‘one-stop-shop’ precept are safeguarded. It suggests that each one concentrations whereby the Fee is healthier positioned to conduct the overview must be referred, with authorized certainty and the ‘one-stop-shop’ precept serving because the figuring out components in assessing whether or not to just accept a referral in such situations (see: 2009 EUMR Analysis, para 143 and SWD 2021, para 146b). It could allow Member States to refer instances to the Fee once they consider it’s higher positioned to evaluate the focus after they’ve been notified or in any other case made identified to them. This can be the case in gentle of potential EEA-wide results, cross-border points, or to keep away from the necessity for the merger to be filed in a number of Member States.
On this context, the requirement for competence on the aspect of the referring Member State seems counterintuitive. A competence requirement precludes referrals from Member States intending to hitch a referral request of a focus that has a big affect on competitors of their market. This prevents the Fee from reviewing the broader EEA or the consequences of a focus in all markets it impacts, as occurred within the Syngenta/Monsanto merger. Right here, the Fee was unable to overview the consequences of the focus in all markets it affected as France didn’t be a part of the referral, regardless of the Fee noting potential competitors issues within the French market.
Permitting non-competent Member States to hitch referral requests of focus that affect competitors of their market would profit the general system’s effectivity and supply better authorized certainty for merging events by guaranteeing a single overview on the EU degree (see recital 16 EUMR). The latter could appear counterintuitive. Nonetheless, given the potential for an Article 102 TFEU process in non-referring Member States, permitting non-competent Member States to make referrals may gain advantage the merging events. It could forestall the applying of Article 102 TFEU to the identical focus and grant authorized certainty to the merging events. (see AG Kokott’s Opinion in Towercast, para 62).
The precept of authorized certainty would act as a counterbalance in figuring out the extent to which referrals are permissible. Whereas a referral from a non-competent Member State, exterior of the historic ‘Dutch clause’ state of affairs, would probably battle with the precept of authorized certainty, the involvement of a non-competent Member State in supporting a referral initiated by competent Member States can be much less problematic on this view of Article 22 EUMR. It falls to the Fee to stability authorized certainty and the ‘one-stop-shop’ precept when deciding whether or not to just accept a referral, as seen in its rejection of the London Inventory Alternate Group Plc/LCH Clearnet Group Restricted referral. Regardless of assembly the necessities of Article 22(1) EUMR, the Fee rejected the referral as a result of the UK (earlier than Brexit), which had jurisdiction, didn’t be a part of the request. The potential for a parallel investigation by the UK, alongside the Fee’s overview of the focus, would undermine the ‘one-stop-shop’ resulting in the rejection of the referral.
In conclusion, imposing a competency requirement to provoke or be a part of referrals underneath Article 22 EUMR seems to contradict its broader function. Nonetheless, this doesn’t indicate that referrals initiated solely by non-competent Member States can be robotically accepted. A non-competent Member State could solely be a part of or provoke a referral request if the circumstances justifying the referral considerably outweigh the added authorized uncertainty. Such situations are probably restricted to conditions the place non-competent Member States are becoming a member of referrals already initiated by competent Member States, and the competitors issues are vital within the non-competent Member States.
The Courtroom and commentators rightly level out that the Fee mustn’t achieve jurisdiction over all concentrations through Article 22 EUMR, as this is able to compromise the readability and predictability of the system that the turnover thresholds guarantee. The thresholds are essential for making the Fee’s jurisdiction clear and foreseeable, which is why the Courtroom emphasises their ‘cardinal significance’ (para 208). The referral mechanism is meant to switch distinctive instances to the Fee, the place it’s higher suited to overview, preserving in thoughts the doable EEA-wide results and cross-border problems with the focus, or to keep away from a number of filings.
4. Merger Management Submit-Illumina
In a press release following the judgment, the Fee hints at an alternate route to deal with killer acquisitions, emphasising its reliance on the referral mechanism to shut the enforcement hole. The Fee goals to leverage Member States’ call-in powers to seize concentrations under merger management thresholds. At present, eight Member States, together with e.g. Italy and Eire, can assert jurisdiction over such concentrations by requiring notification when competitors issues come up even with out assembly any nationwide threshold – this course of is named a ‘call-in’. The post-Illumina path to referrals could thus begin with Member States calling in a focus, asserting jurisdiction, and subsequently referring them to the Fee.
The result of the Illumina case might immediate extra Member States to introduce call-in mechanisms or modify their thresholds to bridge the enforcement hole. Nonetheless, growing reliance on call-in mechanisms for below-threshold concentrations, enabling referral to the Fee, raises two key points. First, the multiple-filing requirement conflicts with the one-stop-shop precept, as every NCA with a call-in energy should be approached individually for them to evaluate the appropriateness of calling-in the focus. Second, the prolonged timeline for overview ensuing from the brand new path to referrals undermines authorized certainty.
Beneath the envisioned process post-Illumina, merging events to a focus under merger management thresholds, for now, solely want to interact with the eight Member States with call-in powers as a substitute of informally notifying every NCA as beforehand required underneath the Fee’s new referral coverage. Whereas that is an enchancment, it nonetheless presents an issue: the multiple-filing situation persists, as every NCA with a call-in energy should be approached to accumulate jurisdiction and provoke or be a part of a referral. This burden will develop if extra Member States undertake call-in mechanisms. A possible workaround through Article 4(5) EUMR, which permits merging events to request for a referral to the Fee if three or extra Member States are competent, would nonetheless require approaching a number of (no less than three) Member States since competence appears to be acquired solely after an NCA deems the focus acceptable for a call-in.
Moreover, the usage of call-in mechanisms prolongs the timeline of merger critiques to the detriment of authorized certainty. This goes towards the Fee’s objective of preserving critiques inside a brief, cheap timeframe. The Courtroom’s rationale regarding voluntary merger management methods, which allows Member States to refer instances after changing into conscious of a merger and earlier than a notification (Illumina, para 165), implies that Member States with call-in powers can refer a merger as quickly as they take into account the call-in justified. Nonetheless, this extra procedural step lengthens an already protracted course of in an space the place velocity is vital for guaranteeing authorized certainty (see Portugal v Fee, paras 51-53). In some instances, resembling Italy’s call-in energy, a Member State can take as much as 60 days to judge the appropriateness of a call-in after a voluntary strategy by the events to the focus. This additional extends the overview interval and provides a probably disproportionate degree of authorized uncertainty for merging events on a possible overview of their transaction.
The growing use of this post-Illumina referral mechanism alerts a have to reassess the jurisdictional thresholds. Rising issues about transactions in sectors the place turnover could not replicate an enterprise’s aggressive potential might result in an elevated variety of concentrations being deemed appropriate for referral, even with a competence requirement. This may occasionally recommend that reliance on the referral mechanism will proceed to develop, probably straining the system.
The decision-in energy path to referrals is sub-optimal from the standpoint of the one-stop-shop and authorized certainty ideas. To keep up the integrity of the EU Merger Management framework and guarantee authorized certainty, the Fee ought to advocate for reform of the prevailing thresholds. Amending these thresholds would assist stability the necessity for efficient management over concentrations with competitors issues with the need of preserving clear jurisdictional boundaries, offering better predictability for merging events and a extra sturdy framework for reviewing concentrations with vital aggressive impacts.
5. Conclusion
The Illumina judgment represents a big setback for the Fee’s strategy to Article 22 referrals. The judgment imposes constraints on utilizing the referral mechanism by introducing a competence requirement. The choice path to referrals hinted at by the Fee is probably not the proper method ahead, because it generates a a number of submitting situation and extends the time to overview even additional to the detriment of authorized certainty. In consequence, the Fee should revisit its strategy and discover other ways to seize mergers with competitors issues that fall under conventional thresholds, whether or not by way of amendments to the EUMR’s thresholds or new nationwide thresholds.
