The future of EU merger control in the aftermath of Illumina/Grail

In Illumina/Grail the Court of Justice of the European Union (the “CJEU”) attempts to restore order to EU merger control, barring the Commission from using the EU Merger Regulation to extend its review powers. It remains to be seen whether this aim will be achieved. In this blog post we clarify Article 22 of the EU Merger Regulation, explain how the Illumina/Grail ruling has changed the referral mechanism and give our views on what the future of referrals within EU merger control will hold.

EU merger control

There are two levels of merger control in the European Union. Certain transactions, involving large corporations with sales in several EU Member States, are notified to the European Commission (the “Commission”) under the EU Merger Regulation (139/2004) (the “EUMR”). Transactions which do not meet the thresholds of the EUMR, and which thus lack an EU dimension, may instead be notifiable to the competition authorities of one or more Member States under national merger control rules.

In exceptional cases, the Commission may review transactions that lack an EU dimension, as the Member States are given certain possibilities under the EUMR to refer transactions to the Commission. Article 22 EUMR is one of the provisions allowing for such referrals. According to the provision, a National Competition Authority (“NCA”) can request the Commission’s examination of a merger even though it lacks an EU dimension, if the merger affects trade between Member States and threatens to significantly affect competition within the territory of the Member State making the request. Article 22 EUMR is a remnant from the time when it was not only Luxemburg that lacked national rules on merger control, allowing those Member States to make sure that concentrations affecting competition in the EU would still undergo scrutiny. As Member States gradually introduced national rules on merger control and the Commission, at one point, discouraged referrals of mergers not meeting the thresholds on national level, one can think that the provision had served its purpose.

Yet, following several high-profile mergers that escaped scrutiny due to the insignificant turnover of the target company, the Commission decided to breathe life into Article 22 EUMR. In March 2021, it published a guidance on the referral possibility set out in Article 22 EUMR, redirecting the provision’s focus to the review of so called “killer acquisitions” (acquisitions of e.g. start-ups with little or no turnover but which pose a competitive threat to larger players in the market). The Commission now invited the NCAs to refer such mergers under Article 22 EUMR.

The option to refer an acquisition to the Commission according to Article 22 EUMR has been used about 40 times, of which the referral has been made a handful of times from the Swedish Competition Authority. Examples of more recent referrals from NCAs to the Commission are the mergers of Apple/Shazam, Facebook/WhatsApp and Illumina/Grail, until the latter was overruled by the CJEU. For more information on the Illumina/Grail saga, read our blog post here.

Effects of the judgment of Illumina Grail and the future of EU merger control

The revival of Article 22 EUMR as a mean to tackle killer acquisitions appeared to be short-lived. In Illumina/Grail, the CJEU concluded that the Commission cannot use Article 22 EUMR to extend its powers to review mergers that fall below both EU and national merger control thresholds as this would jeopardise legal certainty.

It is therefore remarkable that the Commission recently accepted a referral concerning the US-based company Nvidia’s acquisition of the Israeli-based company Run:ai, even though the acquisition does not meet the relevant thresholds. Nvidia is a global supplier of graphics processing units (‘GPUs’) for datacentre applications and Run:ai supplies GPU orchestration software. The Commission’s review of the acquisition is possible, since the Italian Competition Authority has national call-in powers designed to target small, innovative companies. The referral of Nvidia/Run:ai is the first use of Article 22 EUMR since the CJEU restrained the Commission’s powers.

The referral might shine a light on how Article 22 EUMR will be applied in the future. It is likely that Member States with call in options will be in focus. Currently, there are eight NCA’s, including the Italian, with call in powers. Additionally, Member States have introduced thresholds based on other criteria, in addition to turnover. For example, German and Austrian legislation have thresholds based on deal value, and Spain and Portugal have market share thresholds. National legislation may therefore be the key for the Commission to review certain acquisitions, as it is easier to amend the thresholds of the Member States than the EUMR.

Concluding remarks

Wherever EU merger control is heading, legal certainty and foreseeability need to be upheld for undertakings involved in transactions. This was underlined by the CJEU in the Illumina/Grail judgment. Undertakings contemplating a transaction need to know whether the transaction must be notified, and, if so, to which authority and subject to what requirements. If Member States choose to amend thresholds or introduce call in powers, legal certainty still needs to be secured for the undertakings concerned.