On September 20, 2021, the European Commission (“the Commission”) announced that it would issue a Statement of Objections outlining its preliminary findings that Illumina breached the standstill provisions of EU merger control rules. by closing its acquisition of Grail without waiting for clearance. .
Illumina is a leading provider of next-generation sequencing systems for genetic testing. Grail is a start-up that has developed an early detection test for cancer. Grail was previously a spin-off from Illumina, and its cancer screening test relies on Illumina’s sequencing systems.
This is the latest chapter in the saga resulting from the Commission’s first exercise of its ‘new approach’ to Article 22 of the EU Merger Regulation (‘EUTMR’) (see VBB on competition law, Volume 2021, n° 4). Article 22 allows the Commission to exercise jurisdiction over transactions which do not meet EU turnover thresholds but which are referred to it by one or more EU Member State competition authorities . Until recently, the Commission’s established approach was to only accept cases where the referring Member State had jurisdiction. This provided valuable legal certainty for companies whose transactions were too small to require notification in a Member State.
Earlier this year, the Commission announced that it would now accept merger referrals even in cases where the referring Member States themselves did not have jurisdiction over the transaction in question. The Commission claimed that this “new approach” would ensure that competitively significant acquisitions could no longer escape EU merger control simply because the parties’ turnover does not reach European or national notification thresholds.
On April 20, 2021, a few weeks after the official announcement of this policy change, the EU accepted jurisdiction to review the Illumina/Grail transaction following a referral request from a group of competition authorities. Member States, none of which had jurisdiction to examine the merger itself. After losing challenges in the French and Dutch courts to block the referral, Illumina filed an action for annulment with the General Court of the European Union (“CGE”), arguing that the Commission’s acceptance of the referral constituted a excess of his authority. This case is pending.
In the meantime, Illumina formally notified the transaction to the Commission for review on June 16, 2021. On July 22, 2021, the Commission announced its intention to open an in-depth Phase II investigation into the deal. The Commission expressed concern that as a result of the merger, Illumina would have an incentive to prevent Grail’s competitors from accessing its sequencing systems, which could hamper the development of competing cancer tests.
Illumina reacted to the Commission’s unprecedented exercise of jurisdiction with an equally unprecedented decision: it decided to close the acquisition even though it was being actively considered by the Commission. On August 18, 2021, Illumina announced that it would close the acquisition, but separate Grail until the Commission’s review is complete. However, Article 7(1) EUTMR prohibits an acquirer from implementing a notified transaction before it has received clearance from the Commission, whether or not the target is separately owned. Failure to comply with this standstill provision (known as “gun-jumping”) is liable to fines of up to 10% of the acquirer’s annual turnover.
On August 20, 2021, the Commission announced that it would continue an investigation into the diversion of weapons in this case. It has now issued a statement of objections, which offers a preliminary view that Illumina has indeed breached the standstill clause and allows the Commission to impose interim measures to separate Grail and Illumina until it concludes its investigation. In doing so, the Commission underlined its view that the parties could not resort to self-imposed “separate holding” agreements to avoid the standstill obligation imposed by the EUMS.
While it will likely conclude that the standstill obligation has been breached, the Commission’s ability to impose a fine will ultimately depend on its jurisdiction, as determined by the case pending before the EGC. A violation of recidivism can only occur when the parties are required to wait for the Commission to approve their transaction, which is only the case when the exercise of the Commission’s jurisdiction is legitimate.
The Commission seized on the Illumina/Grail case as a first chance to flex its jurisdictional muscles under Article 22 EUTMR. However, Illumina has shown that it will not accept this change in policy and is fighting back at every turn. This agreement will therefore prove to be an even more important test case than the Commission had anticipated.
If the Commission finally succeeds in extending its powers under Article 22 to cover transactions which do not meet either the EUTMR filing thresholds or those of any EU Member State, it will likely usher in an era of uncertainty. significantly higher for merging parties in Europe. Although Illumina made its deal during the Commission’s review (essentially inviting a firearms investigation), the Commission indicated that it intended to use Section 22 to agree the dismissal of agreements that the parties have already concluded on the basis of neither the EU nor any national merger. the control thresholds are reached. This will probably lead the Commission to make more use of interim measures to separate companies and to decide to unwind transactions that have already been concluded. These complex processes can already be observed in the UK, Facebook/Giphy (see VBB on competition law, Volume 2021, n° 4) being the most recent example. In short, it has never been more important for merging companies, in addition to standard jurisdictional analysis, to carefully consider any substantive competition concerns arising from agreements affecting the EU or the UK. , no matter how small.