The European Commission fined Illumina a record €432 million for implementing the acquisition of GRAIL without the Commission’s approval. The fine represents the maximum amount the Commission could have imposed under EU competition rules in this case – 10% of the company's annual turnover. The fine has the potential to significantly affect the Commission’s merger review practice.
The Illumina/GRAIL case
In September 2020, Illumina, a US biotech company, announced it plans to acquire GRAIL, a biotech start-up, originally founded and later spun off by Illumina, specialising in blood tests for early detection of cancer, for $7.1 billion (€5.9 billion). As GRAIL had no business activities or sales in Europe, the transaction was not reportable to the EU competition authorities – neither to the European Commission (the “Commission”) nor to the competition authorities of the Member States. But this was not the end of the Illumina/GRAIL competition story in the EU.
In February 2021, the Commission invited national competition authorities to apply Article 22 of the EU Merger Regulation (the "Regulation"). This rarely applied provision of the Regulation, sometimes referred to as the Dutch clause, allows the Commission to investigate transactions that do not meet Member States' notification criteria if requested to do so by national competition authorities. The national competition authorities of Belgium, France, Greece, Iceland, the Netherlands, and Norway responded to the Commission's invitation and made the request under Article 22. On this basis, in April 2022, the Commission asked Illumina to notify the transaction to the EC and avoid implementing the transaction before the review was complete.
Illumina announced its disagreement with the Commission's approach but promised to cooperate and notify the transaction to the Commission – which it did, in June 2021. At the same time, Illumina appealed to the EU General Court against the Commission's procedure regarding its power to review the transaction. The General Court upheld the Commission's approach in July 2022. Illumina appealed the decision to the European Court of Justice, which has not yet ruled on the case (a decision is expected towards the end of 2023/beginning of 2024).
Gun-jumping and transaction prohibition
In August 2021, before the Commission’s investigation was over, Illumina publicly announced that it had closed its acquisition of GRAIL. Illumina also stated that it would hold GRAIL as a separate standalone company.
Two days following Illumina’s announcement, the Commission opened an investigation against the breach of the Regulation’s standstill obligation – the obligation requiring the company to wait with implementing a transaction until the Commission’s decision (a breach of the standstill obligation is also known as “gun-jumping”).
Since then, the Commission made progress in its investigation and substantive assessment of the transaction. In September 2022, the Commission concluded that the transaction was anticompetitive and prohibited it. The Commission also ordered Illumina and GRAIL to unwind the transaction. Illumina appealed the decision to the General Court, which has not yet ruled on the case.
Fines on Illumina and GRAIL
On 12 July 2023, the Commission fined Illumina €432 million, a record by the Commission for gun-jumping. The Commission described the implementation of the Illumina/GRAIL transaction without its approval as an "unprecedented and very serious” infringement of the EU competition rules. The Commission specifically stated that:
- Illumina knowingly and intentionally breached the standstill obligation at the time the transaction was under investigation;
- The Illumina/GRAIL transaction was problematic and ultimately prohibited;
- Illumina weighed up the risk of a fine against the risk of having to pay a break-up fee if it failed to takeover and the potential profits from the transaction implementation. Illumina thus behaved strategically in the infringement.
Based on these considerations, the Commission initially calculated a fine of €540 million for Illumina. This number was then lowered to €432 million, which represents the upper limit of the fine for gun-jumping, set at 10% of the fined undertaking's worldwide turnover.
The Commission also issued a €1,000 fine against GRAIL. According to the Commission, GRAIL was fully aware of the standstill obligation and yet played an active role in the infringement, taking legal steps to enable the implementation of the transaction. The Commission labelled the €1,000 fine as “symbolic” as it was the first time the Commission fined a target company for gun-jumping.
The practical impact of fines
We consider the penalties’ relevance for further practice to be twofold. First, the fines and their amount make clear that the Commission takes seriously its power to investigate transactions under Article 22 of the Regulation. Despite the uncertainty concerning this power – it is, after all, still subject to the European Court of Justice’s review – the Commission imposed by far the highest fine ever for this type of the infringement, almost half a billion euros (the second highest fine for gun-jumping, against Altice in 2018 was "only" €124.5 million). Parties to potentially problematic transactions will thus have to carefully consider their risk exposure, even if the notification criteria are not met.
Second, the fine for GRAIL represents a meaningful change in the Commission's approach, as it previously only fined the buyers for gun-jumping. The target companies will now have to be much more careful when cooperating with their buyers before the transaction is approved, as the risk will also be on their side. The next fine for the target may no longer be merely symbolic.
But the Illumina/GRAIL saga is far from over. The EU courts are still reviewing both the Commission’s power to investigate the transaction and its decision to block it. Moreover, Illumina has already indicated that it will appeal the gun-jumping fine. There will thus be plenty of interesting developments to follow.
