Commission issues historic interim measures in Illumina/Grail case

The European Commission has adopted interim measures in the Illumina/Grail merger case. The Commission is currently investigating the case, which concerns Illumina’s acquisition of GRAIL − both biotech companies. Although the Commission has yet to make its decision in the merger case, Illumina elected to complete the acquisition of GRAIL. The Commission has now responded by adopting interim measures on top of its ongoing ‘gun-jumping’ investigation.

The case is interesting because the transaction did not meet the EU thresholds but was referred under Article 22 of the EU Merger Regulation in line with new Commission practice. Also, it is the first time the Commission has adopted interim measures against an enterprise which proceeds to implement a merger that is still subject to investigation by the Commission.

Background

Article 22 EUMR allows Member States, subject to certain conditions, to refer a merger to the Commission for examination (the so-called ‘Dutch clause’). Traditionally regarded an extremely narrow exception, the provision has been used only on very rare occasions. This changed, however, when in March 2021 the Commission published new guidance on its policy for use of the referral mechanism in Article 22.

The announcement marked a change towards a much more proactive use of Article 22 referrals. It focuses on, for example, mergers where the turnover of at least one of the parties is not held to reflect the party’s actual or future competitive position and thus its actual market power. Of relevance will also be if the value of the transaction is particularly high compared to the party’s current turnover. Another reason for the revised policy is the implementation by several countries (Germany is one) of special thresholds in order to capture such transactions, often colloquially termed ‘killer acquisitions’.

Among the designated focus areas, the Commission points especially to the digital and pharmaceutical sectors, where innovation is generally an important parameter of competition and where transactions are often implemented before research and development has been commercially exploited.

The case so far

In April 2021 the Commission accepted a referral under Article 22 EUMR of the matter of Illumina’s proposed acquisition of GRAIL. Whereas Illumina is an established company developing, manufacturing and marketing tools for genetic and genomic analysis, GRAIL is a newer startup developing innovative technology for early cancer detection.

The Commission found the referral of the merger relevant especially because, according to the Commission, GRAIL’s relatively modest turnover did not reflect the company’s position and thus its actual market power. Illumina subsequently brought a case before the General Court, claiming annulment of the Commission’s acceptance of the referral under Article 22 EUMR. The case is still pending.

On 22 July 2021, the Commission opened its investigation into Illumina’s proposed acquisition of GRAIL. Yet in August 2021, in spite of the investigation, Illumina announced that the acquisition had now been implemented. The Commission responded by issuing a so-called Statement of Objections, informing the two companies that in the Commission’s assessment their decision to proceed to implementation while the investigation was still ongoing breached the ‘gun-jumping’ prohibition. In addition, the Commission announced its intention to impose fines on Illumina and GRAIL for unlawful early implementation. Such fines are typically quite substantial.

Latest development: Interim measures

The latest development in the matter is that the Commission has now adopted interim measures following the early implementation of the transaction. According to the Commission, the aim of these measures is to prevent serious harm to competition in the interim period until its final decision on the substance of the case. Also, the measures aim to prevent the irreversible integration of the two companies.

This is the first time the Commission adopts interim measures following an early implementation of a merger which is the subject of an ongoing examination. In particular, the interim measures provide that:

GRAIL is to be kept separate from Illumina and be run by (an) independent Hold Separate Manager(s), exclusively in the interest of GRAIL.
Illumina and GRAIL are prohibited from sharing confidential business information, except where the disclosure is required to comply with the law or in line with the ordinary course of their supplier-customer relationship.
Illumina must finance additional funds necessary for the operation and development of GRAIL.
The business interactions between the parties must be undertaken at arm's length, in line with industry practice, i.e. without unduly favouring GRAIL to the detriment of its competitors.
GRAIL must actively work on alternative options to the transaction to prepare for the possible scenario in which the merger were to be prohibited and cancelled.

The measures are legally binding on both Illumina and GRAIL and will remain in force until the Commission makes its final decision in the case. Should the two companies fail to comply with any of the measures, they risk (additional) fines and penalty payments. Meanwhile, the Commission has announced that it will continue to investigate whether Illumina's and GRAIL's decision to implement the merger before completion of the investigation infringes the ‘gun-jumping’ prohibition. If the Commission finds that it does, additional fines may be imposed.

What is the lesson from this case?

The case merits particular attention because it is the first of its kind. So far, the Commission has been hesitant to adopt interim measures. In 2019, for the first time in nearly 20 years, the Commission adopted interim measures in the Broadcom case—which was not a merger case but concerned anti-competitive practices (abuse of a dominant position). Statements by European Commissioner for Competition Margrethe Vestager suggest the Commission expects to begin using this particular tool more frequently, at least on selected markets and particular types of infringement.

Like the Commission, the national Danish competition authorities can impose interim measures against businesses on their own initiative in cases where competition is found to be at risk of serious and irreparable harm. Such measures, however, must be reasonably proportionate to the infringement. The possibility for national competition authorities to impose interim measures on businesses is a requirement under the ECN+ Directive, which seeks to ensure the availability to such authorities of certain enforcement measures and sanctions. With the transposition of the directive into Danish law the possibility was clarified; in fact, the Danish legislature over-implemented the directive, so that it is now also possible to issue interim orders of a structural character (the appealing of which will not result in a stay of proceedings).

The case also shows the Commission’s increased focus on the pharmaceutical sector. Moreover, the circumstances of the case are an example of the type of transaction the Commission wishes to look more closely at, even if the transaction is neither notifiable under EU merger control rules nor under national rules.

The risk of referral under Article 22 or interim measures being taken is in no way restricted to transactions in the digital and pharmaseutical sectors. It is therefore important generally to be mindful of the risk of interim measures being taken against otherwise non-notifiable transactions.