The last week has seen crucial developments at the European Commission (EC) and U.S. Federal Trade Commission (FTC) regarding the antitrust review of the $7.1 billion proposed acquisition by Illumina (the leading supplier of next generation screeners (NGS)) of cancer screening startup GRAIL. The course of the authorities’ investigation of this transaction brings important lessons for parties contemplating potentially controversial transactions, especially ones involving possible vertical or nascent competition issues and that will not be notified in one or more important jurisdictions.
On September 6, the EC blocked the proposed transaction based on vertical competitive concerns, after almost a 14-month Phase II investigation. This prohibition comes 2 months after the European General Court dismissed Illumina’s challenge to the EC decision accepting a referral under Article 22 EUMR, notwithstanding that none of the referring EU Member States had jurisdiction to review the transaction. Illumina has appealed that decision to the European Court of Justice.
The EC prohibition comes less than a week after the FTC’s Administrative Law Judge, D. Michael Chappell, rejected complaint counsel’s challenge to the same merger on September 1. The ALJ’s decision is not yet publicly available. On September 2, the FTC filed its notice to appeal the ALJ decision. In recent decades, the Commission has consistently reversed ALJ decisions rejecting cases the Commission voted to bring (here by a unanimous Commission vote). If the Commission overturns the ALJ, Illumina will be able to appeal the Commission decision to a federal circuit court of its choosing.
In announcing the prohibition, EC Executive Vice-President Vestager said that “Illumina would have an incentive to cut off GRAIL's rivals from accessing its [NGS] technology, or otherwise disadvantage them.” NGS is an essential input for the multi-cancer early detection (MCED) screening devices that GRAIL will be introducing. According to the EC in an extensive statement (the decision is not yet publicly available), today only Illumina’s NGS equipment meets requirements for MCED and there are no “credible alternatives to Illumina in the short to medium term.” The EC claims that its decision will preserve the “innovation race” between GRAIL and its rivals “to develop and commercialise early cancer detection tests.” Illumina, the EC claimed, would have had an incentive “to foreclose GRAIL’s rivals already today, despite benefiting from this action only at a later stage,” because “NGS-based early cancer detection testing is expected to […] reach more than EUR 40 billion” by 2035.
The EC found Illumina’s proposed remedies were insufficient. First, a license open to rival NGS suppliers to some of Illumina’s NGS patents, and a commitment to stop patent lawsuits in the US and China against BGI Genomics, “would not have ensured the emergence of a credible alternative […] in the short to medium term […] because Illumina has many other patents that competitors would need to develop an alternative NGS system;” and, in any case, it “would be a long and costly process” for MCED competitors to switch NGS systems. Second, a commitment to enter NGS systems supply agreements with GRAIL’s rivals under standard terms until 2033 was “unlikely to be effective in practice as [it] did not effectively address all the possible foreclosure strategies,” including degrading technical support for GRAIL rivals or otherwise granting preferential treatment to GRAIL.
This is an unusual case because the parties closed their transaction during the EC investigation. Indeed, after the EC investigation was announced, the FTC withdrew its district court complaint seeking to enjoin the transaction, stating that “[n]ow that the European Commission is investigating, Illumina and GRAIL cannot implement the transaction without obtaining clearance from the European Commission.” After the parties closed, the EC issued interim measures designed to prevent Illumina from commingling GRAIL’s assets while the investigation was ongoing and initiated a fining procedure for violating the EC’s rules against closing a transaction before clearance. Illumina has set aside nearly half a billion dollars in anticipation of a fine.
Following the EC prohibition, the EC is considering additional measures, which may include ordering the transaction unwound. Illumina intends to appeal the EC prohibition decision to the European General Court, “but will begin reviewing strategic alternatives for GRAIL in the event the divestiture is not stayed pending Illumina's appeal.” An ordinary appeal to the General Court takes about 30 months, and an expedited appeal (which the General Court has discretion whether to accept) takes between 7 and 18 months.
Separately, Illumina’s appeal to the Court of Justice of the General Court’s ruling that the EC had jurisdiction over the transaction under Article 22 EUMR is pending. If that appeal is successful, all EC decisions in this case would be annulled for lack of legal basis, including the prohibition, interim measures, any gun-jumping fines, and any unwinding order.
The Illumina/GRAIL saga, at both the EC and the FTC, is a striking example of competition authorities’ intensive focus on both vertical transactions and on preserving nascent competition. Parties contemplating a potentially controversial transaction are well-advised to adopt a multi-jurisdictional approach and carefully account for the risk of a prohibition when negotiating contractual terms. Illumina/GRAIL is also a reminder that potentially controversial non-notified transactions – which have long faced a risk of investigation by the U.S. antitrust authorities and the UK Competition and Markets Authority – now face a risk at the EC under Article 22 as well. That risk – particularly acute when a deal is not reportable because the target has little if any revenue, but the deal nonetheless could raise competition concerns – will increase if there are any complaints from customers, competitors, or disappointed competing bidders for the target that an authority deems plausible.
