Court of Justice curbs EC’s ambition to review non-notifiable mergers

On 3 September 2024, the European Court of Justice ("Court of Justice"), in a landmark decision, put an end to the Illumina/GRAIL saga. It ruled that under the EU Merger Regulation, the European Commission ("Commission") cannot "call in" such transactions that are not notifiable before any competition authority within the EU, i.e., neither EU nor national level. 

This judgment brings an end to the Commission's new policy position published on 2021, by which it aimed to permanently leave open a backdoor for review of mergers (particularly "killer acquisitions") that did not fall under EU or national merger control rules, but nevertheless were considered to possibly affect competition and trade in the EU.

The Court of Justice brings back legal certainty and reminds the Commission clearly of the fine delineation and division of competences between itself and the Member States. This is a very important message in times where investors and their transactions are ever more subject to tight regulatory scrutiny - apart from merger control, also the foreign direct investment (FDI) and the Foreign Subsidies Regulation.

What does this mean for merger control and economic activity in the EU?

With its ruling, the Court of Justice clearly puts legal certainty over regulatory interventionism.  It finds that that the EU Merger Regulation thresholds set for determining whether or not a transaction must be notified are an important guarantee of foreseeability and legal certainty for the undertakings concerned, and that the Commission's athletic interpretation of its powers is liable to upset the balance between the various objectives pursued by that regulation.  Undertakings must be able to easily determine whether their proposed transaction must be the subject of a preliminary examination and, if so, by which authority and subject to what procedural requirements.

This conclusion will be highly welcome by investors globally that seek to do business in Europe. In the short term, the Commission and competition authorities will need time to review the judgment and extract appropriate conclusions and necessary regulatory changes.  In the medium to long term, however, current and new legal changes may be used in order to expand authorities' powers to call in deals. 

What's next from the regulators in the EU?

The Court of Justice has pointed at three alternative tools or mechanisms that the Commission and Member States can action in order to capture below-threshold deals that may significantly impede effective competition. 

First, the Court of Justice has suggested that the revenue thresholds in the EU Merger Regulation can be adjusted in order to bring more deals to the attention of the Commission and subject them to review.  While this option has been discussed in Brussels in some occasions in the past (e.g., on the occasion of Brexit), it seems like an unfit solution to the fact-pattern put by Illumina/GRAIL, as this deal concerned the acquisition of a company with no actual revenue in the EU. The Commission has historically been reluctant to modify the thresholds for this purpose, as it would significantly increase the regulatory burdens on unproblematic transactions just to capture the occasional killer acquisition.

Second, the Court of Justice has pointed to the recent Towercast judgment, where it ruled that below-threshold transactions can be scrutinised as possible instances of abuse of dominance under Article 102 TFEU.  Authorities like the French Competition Authority have already taken the Court's word on this, indicating that they will rely on rules forbidding both anti-competitive agreements (Article 101 TFEU) and abuses of dominance (Article 102 TFEU) to tackle non-notifiable deals. The EU Merger Regulation is unclear on the possibility for the Commission to take this kind of action at EU level, so it remains to be seen whether the Commission decides to embrace this possibility and consider future policy or legislative action to make it bullet-proof.

Third, national notification thresholds and competition authorities' powers to call-in deals can be increased, in order to allow their review at national level and the possible referral of these deals up to the Commission.  Countries like Denmark, Hungary, Ireland, Italy, Latvia, Lithuania, Slovenia and Sweden introduced changes to their legislation to increase the powers of competition authorities to call in deals.  This in turn could enable the authorities of these jurisdictions to refer problematic deals to the Commission, and close the loop criticised by the Court of Justice in Illumina/GRAIL.