The Court of Justice has clarified that the European Merger Regulation is not intended to investigate transactions that are outside the scope of the national and European merger rules.
The reason for this ruling of the Court of Justice is the European Commission’s acceptance of jurisdiction over Illumina’s acquisition of GRAIL. Illumina is a biotechnology company. GRAIL develops systems for the development of cancer detection tests. This acquisition was not notifiable under the EU Merger Regulation (“EUMR”). Several Member States had asked the Commission to investigate the transaction.
Article 22 EUMR allows Member States to request the Commission to assess transactions that do not exceed the European turnover and other thresholds. Article 22 EUMR was intended for Member States without a merger control regime, such as the Netherlands at the time. For this reason, it is also referred to as the ‘Dutch clause’. It was believed that Article 22 EUMR was no longer relevant, because most EU countries already had their own merger control rules. The Commission decided to apply the article to ‘killer acquisitions’: acquisitions aimed at eliminating small but promising companies.
Illumina appealed against the Commission’s acceptance of the referral request. The General Court had previously ruled against Illumina. According to the General Court, the Commission had jurisdiction to investigate the acquisition based on a literal, historical, contextual and teleological interpretation of Article 22 EUMR. The Court of Justice rejected these interpretations and clarified that the ability to refer transactions must be interpreted restrictively.
According to the Court of Justice, Article 22 EUMR cannot be used as a ‘corrective mechanism’ to fill gaps in the merger control regime. The regime is primarily based on turnover and other thresholds, and therefore cannot cover all potentially problematic transactions. In the Court of Justice’s opinion, this does not allow the Commission to accept referrals of transactions without a European dimension if national authorities do not have the power to examine them under their own legislation.
The current turnover and other thresholds are an important guarantee of the predictability and legal certainty offered to the companies involved in a transaction, according to the Court of Justice. Companies must be able to ascertain in advance whether their proposed transaction is subject to investigation and, if so, by which authority and subject to which procedural rules.
The Commission and the Member States will not be pleased with this ruling. Article 22 EUMR was increasingly being used to investigate mergers and acquisitions all the same. Member States are in any case busy broadening their merger control. The Netherlands Authority for Consumers & Markets (ACM), for instance, is arguing in favour of the power also to assess transactions below the notification thresholds. In light of this ruling, ACM has withdrawn its referral request for Microsoft’s acquisition of a startup. ACM thereby made it known that it needed new powers.
This victory will also leave a bitter aftertaste for Illumina. It has not only been fined for acquiring GRAIL ahead of the merger decision, but has also been forced by the Commission to divest GRAIL. Illumina will surely want to recover this loss from the Commission.
Information on dawn raids by ACM and the European Commission can be found at www.invalacm.nl.
This blog has also been published in the Snelrecht section of the Mr. journal. The article can be found here.
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