NCAs have used the article 22 referral mechanism only rarely in the past to delegate their merger review powers to the EC in cases where the EC was better placed to review a deal. Prior to the Illumina/Grail case, however, it had been the EC’s practice to discourage referrals from member states if they did not have jurisdiction to review the deal themselves. The revised article 22 referral policy, applied in Illumina/Grail for the first time, enabled NCAs to request that the EC examine a deal that did not meet the EU and national thresholds but that may impede effective competition in the EU (see our client alert). The rationale of the policy change was to actively use article 22 EUMR to review certain types of M&A deals, including so-called ‘killer acquisitions’ of start-ups or innovative businesses, particularly in the digital/tech, pharmaceutical and bio tech sectors, that are likely to eliminate a source of future competition where at least one of the parties’ turnover does not reflect its actual or future competitive potential, and had not been subject to ex-ante merger review before.

In July 2022, the General Court dismissed Illumina’s appeal against the referral and confirmed the EC’s new article 22 referral practice. Subsequently, in August 2023, the EC reconfirmed its new practice when accepting article 22 referral requests for two M&A deals in the energy and semiconductor sectors where the parties did not meet the EU and national merger review thresholds but that, in the EC’s view, raised competition concerns. (Both deals were later aborted.)

The CJEU now ruled in favour of Illumina, overturning the General Court’s judgment that had upheld the revised article 22 policy and annulling the decisions by which the EC accepted referral requests from the NCAs, thereby quashing the EC’s new article 22 referral policy.

The CJEU ruling

In unequivocal terms, the CJEU found that the EC is not authorised under EU merger control rules to encourage or accept referrals of proposed concentrations without an EU dimension from NCAs where those authorities are not competent to examine the proposed concentrations under their own national law.

In particular, the CJEU found that the General Court was wrong when concluding that a literal, historical, contextual and teleological interpretation of the EUMR allowed NCAs to ask the EC to review a merger falling outside of their jurisdiction (as it did not meet the applicable national merger thresholds). The CJEU highlighted that the thresholds determining whether a deal must be notified serve as “important guarantee of foreseeability and legal certainty” for the businesses involved. According to the CJEU, these businesses must be able to determine easily whether their proposed transaction must be the subject of a preliminary examination and, if so, by which authority and subject to what procedural requirements. As a consequence, the revised article 22 referral policy could not be used as a “corrective mechanism” to address potential gaps in EU merger control enforcement.

Practical impact on merger enforcement in Europe

This landmark ruling is a major blow for the EC’s merger enforcement. The CJEU made it crystal clear that the EC had no jurisdiction to accept the article 22 referral requests from six NCAs in the Illumina/Grail case. It was therefore unlawful that the EC reviewed and prohibited Illumina’s acquisition of Grail and, in the absence of a notification obligation, imposed fines exceeding €432 million against Illumina and Grail for violating the standstill obligation (gun-jumping). The EC is now also facing the risk of substantial damage claims, which might escalate the Illumina/Grail saga into a trauma for the EC. The ruling also means that the EC must abandon its new article 22 referral policy and discontinue pending cases.

The good news is that the CJEU ruling eliminates the risk for M&A deals that NCAs without jurisdiction under national merger control rules can establish EU jurisdiction by referring the deal to the EC for merger review. This welcome (and long overdue) clarification of the scope of EU merger control rules increases legal certainty for M&A dealmaking in Europe.

The bad news for M&A dealmakers is that a number of EU member states have expanded the reach of their rules in recent years to allow them to intervene in deals that previously fell below the EU and national filing thresholds, but that negatively affected competition, including killer acquisitions. While some member states have introduced (rather clear-cut) transaction value-based thresholds (e.g., Germany and Austria) or are considering it (including the Netherlands), other member states (e.g., Denmark, Hungary, Ireland, Italy, Lithuania and Sweden) now permit NCAs to ‘call-in’ deals that do not meet national thresholds but might have a significant competitive impact. These developments have significantly widened the scope for (ex-ante) merger scrutiny of M&A deals by NCAs, and NCAs have more possibilities for ‘classic’ article 22 referrals to the EC today than they had at the time of the Illumina/Grail referral. Following the ruling, the EC is therefore likely to turn to these NCAs and encourage them to refer deals to the EC for review, as already indicated by Executive Vice-President Margrethe Vestager in her first reaction on the CJEU ruling. Legal uncertainty will remain for below-threshold M&A deals in the member state regimes with call-in powers, as they leave significant discretion to NCAs as to when to take on cases.

There is also a risk that NCAs and the EC will be using the abuse of dominance rules (article 102 TFEU) to conduct ex-post reviews of non-notifiable but problematic transactions in the future. The CJEU confirmed in the recent Towercast case that NCAs (and national courts) have this power, and the Belgian competition authority only recently investigated Proximus’ takeover of a competitor on that basis (see also our recent alert). Speaking at a conference earlier this year, DG Competition’s Director-General Olivier Guersent confirmed that the EC would be ready to deploy article 102 TFEU in appropriate cases, should the CJEU not accept the EC’s revised referral policy applied in Illumina/Grail (as has now happened).¹ This (ex-post) review mechanism under abuse of dominance rules increases uncertainty for certain M&A deals but will likely be used only exceptionally as it requires the acquirer to be dominant at the time of the acquisition and the threshold for finding an abuse under article 102 TFEU solely by way of an acquisition is rather high.

Finally, the EC could consider reforming EU merger control rules to expand their scope to capture potentially problematic deals that do not meet the current (solely turnover-based) thresholds; for instance, by introducing a transaction value-based threshold (similar to those in Germany and Austria), granting call-in powers to the EC (similar to those which were recently introduced in a number of member states) or adjusting the existing article 22 EUMR referral mechanism. While such EU legislative reform could possibly increase legal certainty for M&A deals, it would require support from EU member states and take years to implement.

1. Global Competition Review, “Guersent: EU will deploy Article 102 if ECJ thwarts Article 22 approach”, 22 April 2024.

In-depth 2024-198