29 July 2022
(Originally published: 13 July 2022)
On 13 July 2022, the General Court issued its much-anticipated judgment in the case of Illumina v Commission (Case T-227/21) on the issue of the admissibility of the European Commission's jurisdiction following referral requests by National Competition Authorities (NCAs) under Art. 22 EU Merger Regulation (EUMR). The judgment will have a substantial impact on acquisitions in Europe, especially in the pharma and tech sectors.
Art. 22 EUMR allows Member States to request the Commission to examine any concentration that does not have a community dimension but meets the following criteria:
Art.22 EUMR was introduced to give the Commission the power to examine transactions in Member States which did not have national regimes for merger regulation. As more and more Member States have introduced such regimes over time, the Commission had developed a practice of discouraging referrals from Member States not having initial jurisdiction over the transaction in question. However, there has recently been a growing number of concentrations involving firms playing a significant competitive role but generating little or no turnover at the time of the concentration, and hence not notifiable to the Commission or NCAs. These include so-called "killer acquisitions", whereby nascent competitors are acquired to prevent the emergence of potential competition in future.
To address these developments, the Commission has come up with a novel interpretation of Art. 22 EUMR. In March 2021, the Commission published guidance on the application of the referral mechanism (Guidance) which made it clear that the Commission intends, in certain circumstances, to encourage and accept referrals in cases where the referring Member State does not have initial jurisdiction over the case but where the criteria of Art. 22 EUMR are met.
The Guidance provides that where the Commission becomes aware of a concentration meeting the criteria of Art. 22 EUMR, it may inform the Member State potentially concerned and invite that Member State to make a referral request. The competent authorities of the Member State can then decide whether to make the request.
The case before the General Court related to the acquisition of Grail by Illumina. Both parties to the transaction are US pharma companies active internationally. As Grail did not have any turnover in the EEA, the transaction was not notified to the Commission or any NCAs. Notwithstanding this, the Commission, relying on its Guidance, took the view that Grail's importance for competition was not reflected in its turnover and the transaction met the criteria for referral under Art. 22 EUMR. Following the Commission's invitation for the NCAs to send it a referral request, it received such a request from the French competition authority which was joined by several other NCAs. The Commission issued decisions accepting the requests and opened an investigation into the transaction in April 2021 (Case No. M.10188). Illumina appealed against the decisions to the court.
The General Court upheld the Commission's decisions to accept the referral requests, thereby recognising the Commission's jurisdiction over concentrations not falling under the EU or national merger control rules.
The court found that the reference to 'any concentration' in Art. 22 EUMR indicates that NCAs can refer to the Commission any transaction meeting the criteria for referral, irrespective of whether the transaction falls under the national merger control rules.
Referring to the requirement in Art. 22 EUMR that a referral mechanism must be made within 15 working days of the concentration being "made known" to the NCA concerned, the General Court found that it implies the active transmission of information. Although the transaction was announced in September 2020, the General Court concluded that it was the Commission's invitation to send it the referral request through which the transaction was "made known" to the French competition authority.
Bolstered by the decision, the Commission is likely to claim jurisdiction over more concentrations which are not notifiable under the EU or national merger control rules but meet the criteria of Art. 22 EUMR. This is particularly likely in digital markets once the Digital Market Act providing for an obligation on gatekeepers to keep the Commission informed of all its concentrations enters into force.
The General Court's decision has significantly increased regulatory risks for merging companies, including the risk of parallel review processes. By way of example, a transaction may be notifiable in some Member States which can decide to retain jurisdiction and non-notifiable in other Member States which can decide to refer to the Commission. This would contravene the one-stop-shop principle. There is much less certainty due to the risk of a referral request and thereby a significant delay to closing. This should be reflected in the conditions of the transaction documents and the timing for closing. The risk of a referral request will in some cases require additional conditions precedent, management clauses and complex allocation of risks between the parties. This additional complexity may discourage some parties from involvement in concentrations.
Illumina is likely to appeal against the General Court's decision to the Court of Justice (ECJ). It can take up to several years for the ECJ to issue a decision. Until potentially overturned by the ECJ, the General Court's interpretation will remain binding.
(Latest update: 29 July 2022)
Not long after the Court judgement, on 27 July 2022, the Commission accepted a second referral request made under Art. 22 EUMR by the Spanish competition authority joined by twelve other NCAs regarding the acquisition of Inmarsat by Viasat. The acquirer is an American communications company providing high-speed satellite broadband services and secure networking systems for military and commercial markets. The target is a British satellite telecommunications company. As the proposed transaction does not meet the turnover thresholds set out in the EUMR, it was not notified to the Commission. However, it did meet the turnover thresholds in Spain and was notified to the Spanish competition authority. Upon accepting the referral, the Commission concluded that it is best placed to examine the potential cross-border effects of the transaction in the EEA. Viasat will be asked to notify the acquisition to the Commission.
The Commission's decision to accept the referral goes to show that the EU regulator is willing to use its increased powers under Art. 22 EUMR as interpreted in the Guidance. The voluntary joining of the referral request from the Spanish competition authority by twelve other NCAs appears to indicate a wide endorsement for the Commission's stance amongst the regulators in Europe. More similar decisions are likely to follow in near future.
by multiple authors