Illumina/Grail: lessons from a landmark case (I)

European Union
In addition to prohibiting the acquisition, the Commission imposed fines for implementing it without prior approval 
Illumina/Grail: lessons from a landmark case (I)
September 19, 2023

The legal dispute between Illumina Inc. (“Illumina”) and Grail Inc. (“Grail”), on one side, and the European Commission (the “Commission”), on the other, over the intended concentration between the companies is on its way to becoming one of the most important cases of the last decade in the field of competition law, and one that has received the most media attention. Given the various unprecedented issues that have arisen in the field of merger control in the context of this transaction, we will analyze the main lessons from the case in two blog posts.

Background: The Merger Control Regime

The EU merger control regime, like that of most Member States, is based on “notification thresholds”. Thus, not every transaction requires prior notification and approval by the competition authority, but only if the pre-established thresholds are exceeded.

Any transaction exceeding the thresholds set out in Regulation 139/2004 is subject to prior notification and approval by the European Commission, without the need to notify or obtain clearance in any Member State. Otherwise, the transaction will have to be notified to the national competition authorities if the relevant national thresholds are met.

In September 2020, Illumina —a genomic sequencing company from the U.S.— announced its intention to acquire Grail, another U.S. company engaged in the development of early cancer detection tests. Illumina and Grail were not competitors but were at different stages of the value chain: Illumina was the sole distributor of an input necessary for cancer screening tests—a field with various players, including Grail. In this sense, Illumina was the only company capable of supplying the technology necessary for the development of these tests.

Insofar as the parties’ turnover did not meet the criteria set out in Regulation 139/2004, the transaction did not require notification or prior approval by the European Commission. Likewise, in accordance with national merger control regulations, the transaction was not subject to notification in any Member State.

Nevertheless, the transaction attracted the attention of the competition authorities. The European Commission was concerned that the vertical integration could have a negative impact on competition, as Illumina could essentially prioritize the supply of technology to Grail—which would be part of its group—over other competitors.

Lesson 1: The expansive scope of article 22 of Regulation 139/2004

To facilitate cooperation between the Commission and the national competition authorities of the Member States, and to ensure that the assessment of a concentration is carried out by the best placed authority, Regulation 139/2004 provides for a referral mechanism.

Article 22 of Regulation 139/2004 governs referrals from Member States to the Commission. Originally, its purpose was to enable Member States without a merger control regime to refer cases to the Commission. As Member States developed their internal merger control system, the Commission either discouraged referrals under article 22 of Regulation 139/2004 or rejected them. However, in March 2021, the Commission changed its position in a Communication encouraging national authorities to refer transactions that, without reaching the national thresholds, could threaten competition.

The main reason for the Commission’s change of position was the possibility of analyzing so-called killer acquisitions—i.e., acquisitions by large companies (normally in high-innovation sectors) of pioneering firms with an innovative product or service not yet established in the market, thus eliminating a source of future competitive pressure. As the acquired companies are in the early stages of development, their turnover or market share do not normally trigger the notification thresholds, so these potentially harmful transactions escape the scrutiny of competition authorities.

Regardless of the soundness of the rationale underlying the Commission’s change of position, the new approach to article 22 of Regulation 139/2004 increases the legal uncertainty compared to the parties’ turnover-based thresholds. It is now possible to investigate—either to authorize (with or without conditions) or to prohibit—concentrations that do not exceed either the EU or any national thresholds.

In the Illumina/Grail case, the Commission accepted the referral request under article 22 of Regulation 139/2004 (at its own invitation) by France, Belgium, Greece, Iceland, the Netherlands and Norway, and opened an investigation.

Illumina and Grail appealed the referral to the General Court of the European Union, which upheld the Commission’s decision, as explained in this previous post. However, the case is still pending because the parties have appealed to the Court of Justice of the European Union (Case C-611/22).

Lesson 2: Interim measures in merger control? Now yes.

The second lesson we can draw from the Illumina/Grail case is that the Commission has the power to order interim measures during the notification procedure.

Up to this point, the use of this legal instrument—absent in Regulation 139/2004—had never been considered. Either the parties were under the obligation to suspend the transaction until approved by the competent authority, or they had already implemented it—in which case they could later be sanctioned if the concentration exceeded the relevant notification thresholds.

In this case, Illumina acquired Grail in August 2021, before the Commission had concluded the formal investigation opened in April 2021. In response, in October 2021 the Commission adopted the following interim measures aimed at preventing completion of the transaction and its potentially “irreparable detrimental impact […] on competition”:

  • The management of the two companies was to be kept separate, with independent directors.
  • The business interactions between the parties were to be undertaken at arm’s length, without Illumina unduly favoring Grail to the detriment of competitors.
  • Illumina and Grail were prohibited from sharing confidential business information, except in line with the ordinary course of their relationship.
  • Grail was required to actively work on alternative options to the transaction to prepare for the possible scenario in which it would have to be undone (upon the Commission’s prohibition). 

The companies adopted the measures imposed, but challenged them before the General Court. They argued that the Commission is only competent to order measures aimed at reestablishing the preexisting competitive situation upon completion of the transaction, not beforehand. Similarly, they held that the transaction does not meet the EU thresholds and is therefore not subject to notification. Consequently, article 7 of Regulation 139/2004, which requires companies to suspend concentrations until they are approved—and which was the basis for the Commission’s measures—should not apply.

In a separate post, available here [link pending], we address other relevant issues arising from this case such as the impact of the referral regime under article 22 of Regulation 139/2004 and the penalties for early implementation (or gun jumping). 

September 19, 2023