On 21 March 2024, Advocate Normal Emiliou (AG) delivered his non-binding opinion on the Illumina/GRAIL judgment that had confirmed the European Fee’s (EC) powers beneath Article 22 of the EU Merger Regulation (EUMR). The Normal Court docket (GC) had discovered that the EC can settle for referral requests from a Member State Nationwide Competitors Authority (NCA) to evaluation transactions over which the NCA doesn’t have jurisdiction beneath nationwide regulation. The judgment represented a significant victory for the EC, in that it confirmed its broad discretion to evaluation concentrations that may not in any other case be reviewable within the EU.
The AG proposes that the European Court docket of Justice (ECJ) put aside the GC judgment and annul the EC’s acceptance of the referral request. It’s not unlikely that the ECJ will comply with the AG opinion, because it does usually. This might then additionally have an effect on all different appeals that the events have lodged in opposition to the varied EC choices following the acceptance of the referral on this case, together with the attraction difficult the EC resolution of 6 September 2022 to ban the acquisition of GRAIL by Illumina, at the moment pending on the Normal Court docket (Case T-709/22).
Background
On 26 March 2021, the EC printed new steerage on the referral mechanism set out in Article 22 EUMR (the “Article 22 Steerage”),1 addressing the circumstances through which a Member State could request that the EC settle for referral of a focus over which the Member State doesn’t have jurisdiction (i.e., whereas there’s a nationwide merger management regime, the focus doesn’t fulfill the jurisdictional thresholds).
Article 22, the so-called “Dutch clause”, was initially included to fill the enforcement hole for member states that didn’t have nationwide merger management regimes, such because the Netherlands (i.e., to make sure that such a member state with out the facility to evaluation a focus that threatened to be anticompetitive might request the EC to evaluation it). Consequently, the EC has traditionally discouraged referrals of concentrations over which NCAs didn’t have jurisdiction as a result of the thresholds weren’t met (reasonably than as a result of there was no nationwide merger evaluation regime).
Basically, the Article 22 Steerage is meant to take care of a perceived enforcement hole – to allow evaluation of so-called “killer acquisitions”, these concentrations the place “the turnover of at the very least one of many undertakings involved doesn’t replicate its precise or future aggressive potential” (e.g., start-ups or current entrants with important aggressive potential which have but to generate important revenues, which symbolize precise or potential necessary aggressive forces). The EC’s view is that current market developments imply that concentrations that might considerably have an effect on competitors have escaped evaluation, notably within the pharmaceutical and digital sectors (though nothing prevents it from being utilized in different sectors).
The primary software of this method to Article 22 referrals was triggered when the French Competitors Authority (FCA) sought to refer Illumina’s USD$8bn acquisition of GRAIL. Since then the EC has accepted referral requests in three additional merger instances the place the transaction was not notifiable on the EU degree or in any Member State.
Illumina, a world developer, producer and provider of subsequent technology genetic sequencers, consumables and associated companies, has important European turnover. Nevertheless, GRAIL, a U.S. firm creating blood-based most cancers exams for sequencing, had equipped no merchandise, generated no income, and had not employed personnel to organize for regulatory approvals or distribution within the EEA.
On 19 April 2022, the EC accepted the Article 22 EUMR referral.2 The proposed focus didn’t meet the EUMR turnover thresholds and was not topic to the jurisdiction of any Member State. Nonetheless, the EC discovered that it might have an effect on commerce throughout the single market and threatened to considerably have an effect on competitors throughout the territory of France, and {that a} referral was acceptable, as its (lack of) turnover didn’t replicate GRAIL’s aggressive significance.
Illumina sought to annul the EC’s resolution to simply accept the referral on the idea that the EC didn’t have the correct to simply accept an Article 22 EUMR referral from a Member State that didn’t have jurisdiction beneath its merger management regime over the proposed focus. The GC judgment was delivered on 13 July 2022,3 supporting the EC’s place. The AG disagrees with the GC’s findings concerning the which means and scope of Article 22 EUMR. For the explanations acknowledged beneath the AG concludes that the primary floor of attraction is effectively based and that the GC judgment needs to be put aside.
The primary floor of attraction on the scope of Article 22(1) EUMR
The wording of Article 22(1) EUMR doesn’t enable for a definitive conclusion
The AG agrees with the GC that the language of the supply wording shouldn’t be so apparent that the courtroom ought to chorus from contemplating interpretations past the literal interpretation. He acknowledges that the supply states that “any focus” may be referred no matter whether or not there’s a nationwide merger management system. Nevertheless, he then factors to 2 textual components which lead him to doubt the EC place. First, the time period “referral” within the title means that the supply considerations instances which can be really or probably earlier than an NCA. Second, Article 22(1) EUMR requires that the referred merger “threatens to considerably have an effect on competitors throughout the territory of the Member State or States making the request”. He concludes that this language makes it troublesome to interpret the supply as a corrective mechanism to catch mergers that “are possible considerably to impede efficient competitors in the inner market”, because the GC did. The AG stresses that each provision of EU regulation should be positioned in context and interpreted in mild of EU regulation as an entire.
The legislative historical past of Article 22(1) EUMR helps a slender interpretation
Primarily based on the legislative historical past of the EUMR, the GC concluded that NCAs can refer concentrations regardless of their nationwide merger management guidelines. The AG criticizes the GC’s reliance on paperwork authored by the EC and post-dating the adoption of the unique EUMR4 in 1989. In his view that is much more exceptional within the context of the EC’s place (repeated throughout the oral listening to) that the alleged broad scope of the supply was already there at preliminary adoption of the supply in 1989. This could have led the GC to evaluate the pre-1989 preparatory paperwork for the EUMR. The AG then factors out that the supply had been controversial throughout the legislative course of and had been added by the Council late within the day, making it cheap for the GC to additionally depend on Council paperwork.
The AG went on to conclude that the paperwork the GC did depend on don’t assist its conclusions. Moderately, they contradict them when learn of their entirety. Within the AG’s view the decisive query is whether or not Article 22(1) EUMR “permits Member States which have a nationwide merger management system to refer instances that don’t fall inside that system”. He factors out that the Article 22 mechanism was conceived for these member states with no merger management regime, and that an EC Inexperienced Paper from 2001 acknowledged that the potential scope to be used had develop into restricted (following the adoption of merger management guidelines within the remaining member states)5 . The GC did not take this passage into consideration though it contradicts the belief that NCAs ought to be capable of refer any focus.
The GC characterised the broadly interpreted provision as a “corrective mechanism” to make sure efficient evaluation of all concentrations with important results on competitors within the EU, together with these concentrations that may in any other case escape evaluation at both EU or nationwide degree. The AG doesn’t discover any assist within the legislative historical past of the EUMR for this conclusion. He emphasises that on the time of the EUMR’s adoption it was clear to all concerned within the legislative course of that sure transactions would escape ex-ante evaluation by the EC. Lastly, the AG additionally factors out that the EC itself has used the time period “post-notification referrals” within the context of Article 22 EUMR, for instance, within the 2005 Discover on Case Referral.
Article 22(1) EUMR must be interpreted in context
When analysing whether or not different provisions within the EUMR assist the GC’s findings, the AG disagrees with the GC’s reference to the second subparagraph of Article 22 (2) EUMR. He emphasises that the interpretations of Article 22(1) and 22(2) EUMR don’t must be aligned, and that there can be no antagonistic penalties when it comes to authorized certainty and predictability if any Member State might be a part of a referral request. The AG then factors to Recital 15 EUMR which states that Article 22 EUMR permits the EC to take care of concentrations on behalf of requesting Member States. The restricted scope of the referral mechanism and the boundaries of the EC’s powers are supported by the wording of Article 22(5) within the unique EUMR, which acknowledged that “Fee shall take solely the measures strictly obligatory to keep up or restore efficient competitors throughout the territory of the Member State on the request of which it intervenes”.
Apparently, the AG questions the necessity to have a corrective mechanism by deciphering Article 22 EUMR broadly, because the EUMR already accommodates a simplified mechanism to exchange turnover thresholds with different standards, together with transaction worth, if obligatory (Article 1(4) and (5) EUMR). As well as, the unique EUMR foresaw that the referral mechanism was solely to be non permanent and will develop into out of date as soon as a evaluation of the thresholds had taken place. He concludes that this additionally suggests {that a} narrower scope for the referral mechanism was meant.
The target of effectiveness should be balanced in opposition to different EUMR targets
The AG notes that the targets of Article 22 (1) EUMR are to (i) allow evaluation the place the referring Member State doesn’t have merger management (launched within the unique EUMR) and (ii) strengthen the “one-stop-shop” precept (launched in 1997 and bolstered in 2004). The GC recognized Recital 11 EUMR as figuring out a 3rd goal, particularly that the principles on referrals ought to function as an efficient corrective mechanism. The AG disputes this interpretation, concluding that Recital 11 was solely meant to deal with the allocation of competences between the EC and the NCAs and tackle the difficulty of a number of filings.
The AG then turns to the GC’s conclusion that the EUMR’s goal to make sure efficient management of concentrations helps a broad interpretation of Article 22(1) EUMR. He concludes that this goal should be balanced with different targets, together with allocation of competences between the EC and the NCAs, institution of a one-stop store and provision of authorized certainty and predictability for undertakings. The AG factors out that the latter is of explicit significance, and that the interpretation supported by the EC and the GC can upset the stability between it and the opposite three targets. He elaborates on the grave sensible implications for authorized certainty concerning concentrations that don’t meet any merger management thresholds within the EU. In his view the GC’s interpretation would have the impact of accelerating filings whereas lowering authorized certainty as as to if and when the EC would possibly intervene. The AG concludes that making casual notifications to all NCAs to “begin the clock”, because the EC advised, shouldn’t be possible.
The GC’s conclusions are inconsistent with common rules of EU regulation
The AG referred to a number of common rules of EU regulation to assist his conclusions. First, the precept of institutional stability requires that the establishments train their powers with due regard to the powers of the opposite establishments. The EC’s place would devalue each the thresholds within the EUMR and in nationwide regulation by making any merger notifiable. If a revision of the thresholds is required this needs to be a matter for the EU legislature. The AG additionally notes that the precept of worldwide comity might be infringed as a result of the referral coverage might result in the EU claiming jurisdiction in instances with out enough nexus to its territory. Lastly, he questions whether or not undertakings with restricted or no gross sales within the EU can be in a worse place that undertakings with extra important EU actions which profit from the one-stop-shop system. This would possibly infringe the precept of equality. It’s price noting that, opposite to the EC, the AG doesn’t see the necessity to prolong the scope of the EUMR, since mergers which don’t meet the thresholds nonetheless fall throughout the scope of Articles 101 and 102 TFEU.
The second and third grounds of attraction
The GC had examined Illumina’s second floor of attraction, particularly that the referral request was submitted out of time, noting {that a} referral request should be made inside 15 working days of a focus being “made recognized” to the Member State if no notification of that focus is required. Within the case at problem, the invitation letter, despatched by the EC on 19 February 2021 to tell the Member States of this focus, constituted the focus being “made recognized”. Due to this fact the GC held, and the AG agreed, that the referral request was made in due time. Whereas the EC made a procedural error by letting a interval of 47 days elapse between receipt of the criticism on 7 December 2020 and the 19 February 2021, the appellants didn’t substantiate the argument that the end result of the process may need differed with out this error.
Lastly, the AG concurs with the GC’s conclusions concerning the alleged breaches of the rules of official expectations and authorized certainty. The GC recalled that, to depend on the precept of official expectation, the occasion involved ought to set up that it has acquired exact, unconditional and constant assurances, from authorised, dependable sources, which might lead it to entertain well-founded expectations. As a result of Illumina had did not reveal this, it couldn’t depend on the EC’s prior decision-making observe.
Closing Ideas
If the ECJ follows the AG, the EC will probably be confronted with a dilemma.
In 2021 it concluded (following its evaluation of the EUMR) that “the turnover-based jurisdictional thresholds of the EU Merger Regulation, complemented with the referral mechanisms, have usually proved efficient in capturing important transactions within the EU inside market” and that “the absence of complementary transaction value-based thresholds had not in itself considerably impaired the effectiveness of the prevailing jurisdictional thresholds”.6 It explicitly acknowledged that there was no have to introduce value-based thresholds (i.e., the method taken in Germany and Austria to make sure jurisdiction over concentrations involving extremely valued corporations with restricted turnover).7
In different phrases, earlier than it adopted the “new” expansive method to Article 22, the EC concluded that the jurisdictional thresholds within the EUMR didn’t must be revised. Nevertheless, this conclusion got here with the caveat that the historic coverage of discouraging Article 22 referrals by member states with out jurisdiction was “limiting its effectiveness”. As such, it seems that the EC’s conclusion was made at the very least partly on the belief that the change in method to Article 22 would obviate the ned to amend the EUMR. Article 14 of the Digital Markets Act, for instance, displays an assumption that Article 22 EUMR will allow the EC to evaluation deliberate concentrations (within the digital sector or that allow the gathering of knowledge) that it’s “knowledgeable” about by “gatekeepers”.
Given {that a} regulation that may create a merger evaluation regime in Luxembourg has been introduced to the Luxembourgish parliament, the window for a member state to make use of Article 22 to refer concentrations (whether or not on account of the EC being “knowledgeable” of the deal or in any other case) taking the “historic” method is narrowing. As soon as that regulation is on the books, Article 22 will develop into moot (beneath the historic interpretation).
This may go away the EC with the opportunity of counting on ex put up evaluation of concentrations beneath Articles 101 and 102 TFEU (as famous by the AG), an method that doesn’t seem to have been a significant component within the EC’s 2021 conclusion that there was no have to amend the EUMR’s jurisdictional thresholds. That stated, the EC’s considering on the utility of the TFEU within the context of mergers could have not too long ago developed though it appears unlikely that it will contemplate being restricted to ex put up evaluation to be adequate within the context of “killer acquisitions” specifically.
Consequently, if the ECJ follows the AG, the EC could revisit its 2021 conclusion that the EUMR thresholds don’t must be revised. The EC was reluctant to take this method in 2021, and it isn’t clear that the EUMR can be amended now with out reviving the commercial coverage debates that the EC sought to keep away from then.8
Lastly, as famous above, even when the ECJ takes the method proposed by the AG, the UK CMA’s broad jurisdictional discretion would stay intact. The CMA can open an investigation regarding transactions over which it believes it has jurisdiction with out having to take a definitive place on jurisdiction till the tip of its Section 1 evaluation. Because of this it could problem an Preliminary Enforcement Order (IEO) that prohibits implementation of a transaction at some stage in that Section 1 evaluation.
