On 6 September 2022, the European Fee (EC) prohibited Illumina’s acquisition of Grail, bringing to an finish the executive stage of a authorized saga that has attracted curiosity past competitors regulation specialists. In accordance with the EC, the transaction would hinder innovation and cut back selection within the rising marketplace for early-stage blood-based most cancers detection checks. The EC additionally discovered that Illumina’s proposed treatments can be inadequate to deal with its issues. Illumina has appealed the EC determination (Case T-709/22).
The EC’s determination has a number of options that make it uncommon and which ought to be famous for future transactions, notably within the tech, pharma and different revolutionary sectors:
- The choice rests on an innovation concept of hurt in a vertical transaction. In essence, the EC discovered that Grail and its rivals are engaged in an innovation race to develop and commercialize early-stage blood-based most cancers detection checks, and that Illumina may foreclose this innovation competitors as a result of Grail’s rivals depend on Illumina’s sequencers to develop and run their checks. The idea of hurt activates the influence on third events’ incentives to innovate1.
- It’s the first event the place the EC has reviewed a transaction over which neither it nor nationwide competitors authorities (NCAs) had jurisdiction beneath Article 22 EUMR.
- The EC can also be contemplating, for the primary time, learn how to unwind a transaction that closed with out clearance, in a way that restores the independence and ensures the viability of Grail sooner or later.
Background
On 19 April 2021, the EC accepted a referral request, beneath Article 22 EUMR, from the French NCA (subsequently joined by 5 different NCAs)2. The transaction didn’t meet the EUMR turnover thresholds and didn’t fall inside the jurisdiction of any particular person Member State. Contemplating the referral request, the EC discovered that the transaction may have an effect on commerce inside the single market and threaten to considerably have an effect on competitors inside France. The EC took jurisdiction, concluding that Grail’s (lack of) EU turnover didn’t replicate its aggressive significance.
On 16 June 2021, the transaction was notified to the EC and, on 22 July 2021, an in-depth investigation was opened. On 18 August 2021, whereas the EC’s overview was nonetheless ongoing, Illumina introduced that it had accomplished the acquisition. On 13 July 2022, following Illumina’s attraction relating to the EC’s determination to just accept the referral, the Normal Courtroom (GC) confirmed the Fee’s jurisdiction. Illumina has appealed the GC’s judgment to the European Courtroom of Justice and the Advocate Normal delivered his opinion on 21 March 2024 (see our briefing here).
The Fee’s prohibition determination
The EC discovered that the merger would give Illumina the flexibility and incentive to chop off Grail’s rivals from accessing its Subsequent-Technology Sequencer (NGS) expertise (or in any other case drawback them), having a big detrimental impact on competitors in creating and advertising and marketing NGS-based most cancers detection checks within the EEA.
Competitors issues
The EC discovered that Grail and its opponents are at present engaged in an innovation race to develop and commercialize early-stage blood-based most cancers detection checks, and that defending this competitors is essential to making sure that early-stage blood-based most cancers detection checks with completely different options and costs are launched in the marketplace. The EC discovered that, if it had authorized the merger, Illumina would have been in a position to foreclose Grail’s rivals. Grail and the opposite take a look at builders depend on Illumina’s NGS programs to develop and run their checks. Presently, solely Illumina’s tools meets the necessities for such checks, and there are not any credible options to Illumina within the short-medium time period. This discovering is in stark distinction to the CMA’s discovering in 20193, specifically that Illumina competes with quite a few different NGS system suppliers.
The EC additionally discovered that there are vital obstacles to entry, particularly because of the danger of mental property (IP) litigation, the necessity for Grail’s rivals to have the ability to provide checks that may be run on an put in base of NGS devices in third-party laboratories that may compete with Illumina’s ongoing innovation, are a developed and steady expertise, and supply dependable help providers. Furthermore, being pressured to change NGS system suppliers can be an extended and expensive course of for Grail’s rivals, with none assure of success.
The EC additionally took the view that Illumina would have had clear incentives to foreclose Grail’s rivals. The NGS-based early-stage blood- primarily based most cancers detection testing market is predicted to increase quickly and turn into extremely profitable. Given the large market potential and the continuing innovation competitors within the growth of early-stage blood-based most cancers detection checks, the EC discovered that Illumina would have an incentive to foreclose Grail’s rivals now, even when it could profit from that solely sooner or later.
Illumina’s proposed treatments
Illumina provided treatments to deal with these issues. Nonetheless, the EC concluded they didn’t adequately handle its issues in a means that might have preserved competitors on an enduring foundation and prevented hurt to innovation. In accordance with the EC, the treatments didn’t completely take away Illumina’s capacity or incentives to foreclose Grail’s rivals and would haven’t prevented the transaction’s detrimental impact on competitors. Specifically, Illumina proposed to:
- Grant competing NGS system suppliers a licence to sure NGS patents. It additionally dedicated to cease patent lawsuits within the US and Europe towards competing NGS system provider BGI Genomics for 3 years, to scale back IP-related obstacles to entry and make it simpler for competing NGS system suppliers to deliver their merchandise to market.
- The EC concluded that these commitments would haven’t ensured the emergence of a reputable different to Illumina’s NGS programs for Grail’s rivals within the short-medium time period. The patent licence would have solely had a restricted influence as a result of the lined patents had been on account of expire within the brief time period, and since Illumina has many different patents that opponents would want to keep away from infringing when creating different NGS programs. Additional, it concluded that different vital obstacles that impede the emergence of a reputable different to Illumina’s NGS programs for Grail’s rivals wouldn’t be addressed, resembling switching suppliers (if, and when, this may occasionally turn into attainable), a prolonged and expensive course of for Grail’s rivals, with no assure of success.
- Conclude agreements with Grail’s rivals on commonplace situations that might stay in pressure till 2033 and guarantee ongoing entry to Illumina’s NGS programs.
The EC concluded that these commitments had been unlikely to be efficient in observe, as they didn’t successfully handle the entire attainable foreclosures methods that Illumina may undertake. For instance, Illumina may foreclose Grail’s rivals by degrading the technical help for its NGS programs. Moreover, Illumina may simply circumvent its obligations beneath the commitments, and grant preferential remedy to Grail. Lastly, monitoring these commitments would have been troublesome due to their complexity and the truth that Grail’s rivals would have problem detecting breaches.
Conclusion
The general public announcement by the events that that they had accomplished the acquisition led to an investigation for violation of the standstill obligation.4 The EC got here to the conclusion that the infringement had been dedicated knowingly and deliberately and, on 12 July 2023, fined Illumina and GRAIL roughly €432 million and €1,000 respectively for gun leaping.5
On 12 October 2023, the EC took the uncommon step of adopting restorative measures requiring Illumina to divest GRAIL and to adjust to transitional measures till the transaction has been dissolved. The EC requires that by the divestment GRAIL’s independence is restored to the identical degree as earlier than the acquisition. The identical applies to GRAIL’s viability and competitiveness. Lastly, the EC ordered Illumina to pursue the divestment inside strict deadlines and with “ample certainty”. Following the end result of parallel US courtroom proceedings Illumina has introduced on 17 December 2023 that it’ll divest GRAIL taking the EC’s necessities under consideration. On 12 April 2024, the EC authorized Illumina’s divestment plan.
Illumina’s attraction towards the EC prohibition determination is pending, because it additionally continues to pursue its ongoing appeals relating to jurisdiction and restorative measures earlier than the European Courtroom of Justice.
