Worldwide: Buyer Beware! Aggressive Competition Watchdogs Trying To Block More International Deals – A Cautionary Tale From The Illumina-GRAIL Merger Challenge

In an unprecedented intervention by the European Commission (EC), the EC recently asserted jurisdiction over and challenged a United States-based merger that falls below the filing thresholds of the EC and each and every European Union Member State. This action threatens to subject future merger transactions with no material connection to European commerce to merger control by the EC. An extraordinary Statement of Concerns, signed-on by former senior competition law agency leaders and competition law experts from around the world, recently published in Concurrences highlights the harmful implications of the overreach by the EC for predictable global competition law enforcement. Also, in another first, five former Competition Commissioners from Canada are jointly waving the red flag with respect to the EC's disregard of well-accepted norms established by the Organization for Economic Cooperation and Development (OECD) and the International Competition Network (ICN) as well as longstanding jurisprudence concerning jurisdiction for the purpose of international merger review.

Notably, in the Illumina-GRAIL transaction, GRAIL has no European commerce. GRAIL is a start-up with no operations or presence in the EU or the European Economic Area (the "EEA") (including no customers, contracts, or revenues in any EU Member State/EEA State) and had no plans to expand into the EU or EEA in the foreseeable future, according to the companies. Typically, when merging businesses do not have a competitive overlap in a given market or jurisdiction, the transaction would not usually raise competition concerns in the non-overlapping markets.

The unexpected regulatory road through the EU for Illumina's approximately $8 billion acquisition of GRAIL occurred despite an in-depth US Federal Trade Commission (FTC) review and challenge of the deal, and demonstrates the current climate of intense global antitrust scrutiny of transactions.

In the EU and US, antitrust agencies are concerned with the potential for the merger to raise "vertical" antitrust issues by combining firms at different levels of a supply chain. Illumina provides DNA sequencing tools used in the development and commercialization of multi-cancer early detection tests ("MCED" tests), while GRAIL is a downstream developer and provider of those MCED tests. The FTC and EC have been focusing on whether the deal would provide Illumina, the allegedly dominant supplier of a critical input in MCED test development, with the incentive and ability to disadvantage GRAIL's MCED rivals.

The proposed merger was first announced in September 2020, triggering an in-depth review in both the United States and European Union. In August 2021, nearly a year after announcing the deal, the parties closed the transaction. Illumina closed the deal by taking the position that the neither the EC nor its member states had jurisdiction over the transaction, given that GRAIL has no business in the European Union and the merger did not trigger any notification thresholds there. Upon closing, Illumina immediately held GRAIL separate pending the outcome of the regulatory process and jurisdictional challenge. The EC continued its inquiry and issued a ruling in September 2022 prohibiting the acquisition. Nearly a year later, in July 2023, the EC imposed a record fine of 432 million euros on Illumina (and 1,000 euros on GRAIL) for having implemented their merger before approval by the EC (i.e. gun jumping). Illumina is appealing the EC's assertion of jurisdiction over the transaction and its substantive objections to the deal. Rulings are expected in these proceedings in 2024.

While there is no debate that the United States has jurisdiction to review this merger as the parties operate in the United States, the merits of that review has been contentious. Following a full merger review that included the parties' compliance onerous "second requests", the FTC filed a complaint challenging the deal in its administrative court. The FTC Administrative Law Judge ("ALJ") conducted a lengthy trial and ruled that FTC counsel had failed to prove its case. However, under established FTC procedures, the matter then went on appeal back to the FTC—the same body that initially issued the complaint. In April 2023, the FTC overturned the ALJ's findings and concluded that the acquisition was anticompetitive. It further ordered the parties to unwind the transaction. Illumina is also appealing the FTC's decision before the courts.

While it may take over a year for these appeals to conclude, there are several concerns at this stage of the legal proceedings in this case. The most troublesome would be the EC's decision to intervene based on a new approach to jurisdiction relying on 2021 guidance issued in the context of the new EC interpretation of Article 22 of the EU Merger Regulation (the "EUMR'"). The EC's "out of left field" intervention, creates significant confusion and uncertainty regarding when the EC can and will exercise jurisdiction in any proposed merger, even when there is no directly affected European commerce in play. These developments ultimately undermine both the ability of non-EU competition authorities to properly exercise jurisdiction, including their ability to conduct full reviews of proposed or completed transactions with a material nexus to their own markets, as well principles of comity. The EC's assertion of jurisdiction in this manner is also out of step with public international law and the European Court of Justice's (the "ECJ's") own legal standard for exercising extraterritorial jurisdiction. It is also out of step with international best practices as reflected in recent recommendations which were unanimously supported by the ICN and the principles reflected by the OECD Competition Committee in its 2016 roundtable regarding jurisdiction nexus in merger control.

The EC's assertion of extraterritorial jurisdiction in this manner has implications far beyond the individual case. In so doing, the EC assumes the role of global merger control enforcer even for mergers with at best speculative effects in the EU. This opens the door to a plethora of conflicting legal issues with a number of other jurisdictions, introduces uncertainty and unnecessary frictions into international merger control, and undermines the fundamental purpose of international competition law and policy organizations such as the ICN and the OECD Competition Committee.

Within Canada, this means that merging companies with even a tangential connection to the EU may need to consider whether the EC could, or would, potentially seek to assert jurisdiction over the transaction, even if statutory thresholds are not met. If you have questions about how the EC's new interpretation of Article 22 may impact Canadian mergers, you can reach out to any member of Fasken's Competition, Marketing & Foreign Investment group. Our group has significant experience advising clients on all aspects of Canadian competition law.

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