Article 22 Authorized referrals outside EU merger control rules
On July 13, 2022, the General Court of the EU (CGE) delivered its judgment in case T-227/21, Illumina, Inc. v European Commission. In its judgment, the EGC concludes that the European Commission (the Commission) is competent to examine a transaction which (a) does not have a European dimension, or (b) does not fall within the scope of national rules of EU Member States (or States party to the Agreement on the European Economic Area) merger control.
This judgment marks the first time that the CGE has adopted a substantive decision on Article 22 of Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (ECMR), after the Commission updated its guidance on the provision in March 2021.
New Commission guidance on Article 22 CTMR
On 26 March 2021, the Commission adopted its new guidelines on the application of the referral mechanism provided for in Article 22 of the GBER. Since that date, the Commission has started to accept referrals of transactions from the competition authorities of EU Member States (CNA) that fall below the national merger control thresholds, as well as below the BER thresholds. Previously, in principle, EU Member States could only refer mergers to the Commission that did not meet the ECMR thresholds, but complied with national merger notification requirements, affected cross-border trade and threatened the competition in one or more EU Member States.
The change in the Commission is important for negotiators: any transaction that could be considered likely to raise competition concerns could end up being examined by the Commission, regardless of the size of the objective, and even after the close of the transaction. In addition, there is no specific time frame as to when closed transactions can be returned to the Commission. In addition, the Commission’s change in position is expected to increase the number of cases subject to parallel merger control review by the Commission and the NCA.
The Commission has changed its practice due to a perceived enforcement gap regarding potentially anti-competitive transactions falling below all concentration thresholds in the EU. While the Commission’s renewed practice is not limited to specific sectors, digital and pharmaceutical/biotech mergers (as in Illumina/Grail) are of particular significance.
When the Commission accepts a referral, a standard “CO notification form” must be sent to the Commission. Form CO notifications are complex and may require extensive preparation and work, and include a de facto mandatory pre-notification phase, which can last several weeks to several months.
Context of Illumina/Grail
The judgment relates to the acquisition by Illumina, Inc. (Illuminated) of Grail LLC (grail).
Illumina is a company active in the large-scale analysis of genetic variation, particularly nucleic acid sequencing technologies. Grail is an American biotechnology company that has developed a multi-cancer early detection blood test.
On September 20, 2020, Illumina and Grail entered into an agreement whereby Illumina would acquire Grail. A day later, the two companies announced the proposed transaction through a press release.
Although the proposed transaction did not meet the ECMR thresholds, the Commission received one complaint regarding the transaction. The Commission entered into discussions with the complainant and various NCAs, including those of Germany, Austria, Slovenia and Sweden. With reference to the Commission’s guidelines for 2021, the Commission indicated that the proposed transaction would fall under Article 22 of the GBER. Shortly thereafter, on March 9, 2021, the French ANC asked the Commission to investigate the proposed transaction.
The Commission found that the transaction between Illumina and Grail was likely to affect trade between EU Member States and would significantly threaten competition in the internal market in several EU Member States. As a result of these findings, the transaction was not authorized to proceed. Despite this, Illumina/Grail closed the transaction while the Commission’s review was pending.
On April 28, 2021, Illumina appealed the Commission’s decision which resulted in the EGC judgment. Among the grounds given for the appeal were the Commission’s incompetence to assess the transaction and the Commission’s late request for notification.
Findings of the General Court
The EGC ruled that a textual interpretation of Article 22 CTMR makes it clear that an EU Member State is entitled to refer any concentration to the Commission if the cumulative requirements set out therein are met. This is independent of the existence or scope of national merger control rules. The reasoning of the CGE is as follows:
Although historically intended for EU Member States without a national merger control regime, Article 22 of the EU Merger Regulation and its referral system can also be used by EU Member States which have their own merger control system.
The CGE further considers that, through a purposive interpretation, referral mechanisms such as those of Article 22 CTMR are an instrument intended to remedy the control deficiencies inherent in a system based mainly on thresholds of turnover which, due to its rigid nature, is not able to cover all concentrations deemed worthy of examination at European level.
Illumina/Grail shows that the Commission takes referrals under Article 22 of the GBER seriously. This trend is set to continue. Indeed, the EGC judgment should reinforce the Commission’s determination to examine so-called “killer” acquisitions, including in the pharmaceutical/biotech and digital sectors, which are not notifiable under the European and national concentration control.
Therefore, now more than ever, EU merger control review will need to be part of any contemplated M&A deal – no matter where in the world the deal is intended to have. venue. Merging parties have different options, depending on their desired strategy and the complexity of the case, to seek advice from the authorities. For example, one option to consider could be for parties to contact the Commission to determine whether the Commission is likely to accept – or even invite – a referral request by NCAs.
In addition, account will have to be taken of Article 12 of the soon-to-be-adopted EU Digital Markets Act (AMD), under which designated ‘gatekeepers’ will have an obligation to inform the Commission of any proposed concentration before it is implemented, whether notifiable to the Commission or to an NCA. Presumably, the Commission may be able to use Article 22 BER to invite EU Member States to refer the case to the Commission if the matter does not fall within the competence of the Commission. The DMA can be an important source of information for the Commission in this respect.
Finally, transaction complexity is further increased by (a) future notifications under the proposed EU foreign subsidy regulatory regime, and (b) pre-closing submissions under national foreign/national security investments, which we reported on recently.
©2022 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume XII, Number 196
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