The Bottom Line
- Tougher M&A Scrutiny is Here to Stay: The General Court confirmed the European Commission’s power to review “killer acquisitions”—deals where an established player buys an innovative start-up—even if the target has zero revenue in Europe. This significantly expands the Commission’s reach.
- Procedural Precision is Paramount: The multi-billion dollar merger ban was overturned not on substance, but on a procedural flaw. The European Commission failed to give the companies a fair chance to defend themselves against all of its final arguments, a critical lesson for any company facing an EU investigation.
- The Deal is Back in Play, But the War Isn’t Over: While Illumina and GRAIL won this battle, the European Commission can now re-examine the case with a corrected procedure or appeal the judgment. The precedent set on jurisdiction means future innovative deals face a much higher risk of regulatory intervention.
The Details
This landmark judgment concerns the European Commission’s 2022 decision to prohibit the acquisition of GRAIL, a developer of a groundbreaking blood test for cancer detection, by Illumina, a global leader in DNA sequencing. The case was highly unusual because GRAIL had no turnover in the EU, meaning the merger did not meet the standard thresholds for a mandatory EU review. However, the European Commission used a provision known as Article 22 of the EU Merger Regulation—often called the “Dutch clause”—to accept referral requests from several Member States and launch a full-scale investigation, arguing the deal could stifle innovation in a critical healthcare market.
The General Court delivered a nuanced and split decision with massive implications. Firstly, and most importantly for future M&A, it validated the European Commission’s bold use of Article 22. The judges agreed that the European Commission was fully entitled to review a deal that fell outside the normal revenue-based thresholds, provided it was referred by a Member State. This gives a formal green light to the regulator’s new policy of actively scrutinizing acquisitions of innovative start-ups by dominant players, sending a clear signal to CEOs and dealmakers that a target’s future competitive potential, not just its current balance sheet, can trigger a major EU antitrust probe.
Despite endorsing the European Commission’s jurisdiction, the General Court ultimately annulled the prohibition decision itself. The reason was a critical procedural error that violated Illumina’s rights of defence. The Court found that the European Commission’s final decision relied on arguments about how the deal would harm the “innovation race” that were different from those presented in its initial Statement of Objections. Because Illumina was not given a proper opportunity to hear and respond to this revised theory of harm, the entire decision was procedurally flawed. This serves as a stark reminder that even with expanded powers, EU regulators must adhere strictly to due process, providing a crucial avenue for legal challenges.
Source
The General Court of the European Union
