In 2021, Illumina, Inc. (“Illumina”), a global genetic testing company, acquired GRAIL LLC (“Grail”), a healthcare start-up that develops early cancer detection tests based on sequencing technologies.[1] Illumina formerly owned and has since retailed a minority interest in Grail.[2] With Illumina’s acquisition of Grail, however, the two companies would be reunited “at a critical time.”[3] Grail “needs Illumina’s scale and expertise to overcome significant hurdles to the widespread adoption of” its new multi-cancer early detection test.[4]
However, because the $7 billion transaction involves the vertical integration of Illumina, antitrust authorities are concerned that it will result in a reduction of competition and innovation in the cancer-detection test market.[5] A vertical merger is defined as “a merger between businesses occupying different levels of operation for the same product, such as between a manufacturer and a retailer.”[6] Indeed, Illumina is a leading supplier of next generation screeners (“NGS”), which are necessary components for the development and production of Grail’s tests.[7] Antitrust authorities are concerned that with its acquisition, Illumina would put Grail in an advantageous position, to the detriment of its competitors.[8] For these reasons, both the Federal Trade Commission (the “FTC”) and the European Commission (the “Commission”) have challenged the acquisition.[9] Despite the ongoing investigations by regulators, Illumina has managed to close the deal.[10]
US: Illumina’s Win Over the FTC
In September 2022, Administrative Law Judge Chappell dismissed the FTC’s charges against Illumina.[11] The FTC argued that because the multi-cancer testing industry depends on Illumina’s NGS technology, the acquisition could result in a reduction of competition in the relevant market.[12] However, Judge Chappell cited several reasons for why he was not persuaded by the evidence brought by the FTC.[13] The judge reasoned that competition was not threatened because no other company in the industry was expected to launch a competitive product in the near future.[14] Additionally, the judge dismissed the FTC’s related claims because two conditions existed prior to the acquisition.[15] First, because Illumina formerly owned and then maintained a minority interest in Grail, it was already incentivized to favor Grail over Grail’s competitors.[16] Second, because Illumina is the only NGS supplier, its ability to monopolize the multi-cancer early detection test’s market was not a consequence of the acquisition.[17] Finally—and arguably most important—Illumina’s standardized, long-term supply agreement, “Open Offer,” is available to all “U.S. oncology testing customers who purchase NGS products for developing and/or commercializing oncology tests.”[18] This “constrains” Illumina’s ability to harm Grail’s competitors.[19] Following Judge Chappell’s dismissal of the FTC’s claims, the FTC filed an appeal.[20]
Europe: Commission Blocks Illumina/Grail Deal
One might rightly wonder why an acquisition involving two US companies would attract the attention of EU competition authorities. In July 2021, the Commission launched an in-depth investigation of the acquisition.[21] Nevertheless, for the first time a concentration[22] was implemented prior receiving the Commission’s approval and while the investigation was still ongoing, thereby violating the company’s stand-still obligation.[23] Just one week after Judge Chappell’s favorable decision in the US, the Commission’s investigation resulted in the prohibition of the transaction, citing vertical competitive concerns.[24]
In July 2022, the General Court of the European Union (the “GC”) dismissed Illumina’s challenge to the Commission’s decision accepting a referral under Article 22 of the EU Merger Regulation (the “EUMR”).[25] France, joined by other countries, referred the matter to the Commission because the proposed transaction did not meet the turnover thresholds for notification under the EUMR.[26] Specifically, France claimed that Grail’s competitive significance was not reflected in its turnover.[27]
Illumina argued that because Grail does not operate in Europe, the Commission should not have had the authority to review the transaction.[28] However, the GC held that an EU Member State may submit a merger matter to the Commission, under Article 22 EUMR, even if the case would not be covered by that State’s national merger regime.[29] Indeed, the EUMR allows the Commission to review mergers or acquisitions if the transaction involves companies with a turnover above specific thresholds (under Article 1 of the EUMR) or in cases in which the Commission acquires jurisdiction by virtue of a referral from a Member State (under Articles 4(5) and 22 of the EUMR).[30] Though the Commission previously discouraged Member States from referring cases to the Commission in which the Member States lacked original jurisdiction, in March of 2021 the Commission issued a guidance document encouraging Member States to refer such cases to the Commission.[31] The guidance document also stated that the Commission would accept referrals, provided of course that Article 22’s requirements are met.[32] Thus, the Illumina/Grail case represents a landmark judgment because it is the first application of the Commission’s new interpretation of Article 22 of the EUMR.[33]
After an almost 14-month long investigation, the Commission reached a judgment prohibiting Illumina’s acquisition of Grail.[34] In contrast to the decision reached in the United States, the Commission found that the transaction would hinder innovation and negatively impact growth opportunities in the blood-based early cancer detection tests market.[35]The Commission noted that should Grail’s development of blood-based early cancer detection tests be successful, these tests could revolutionize the fight against cancer,[36] and because human lives are at stake, monopolization could not be risked. Indeed, Margrethe Vestager, the European Commissioner for Competition, explained that “with this transaction, Illumina would have an incentive to cut off GRAIL’s rivals from accessing its technology, or otherwise disadvantage them. It is vital to preserve competition between early cancer detection test developers at this critical stage of development.”[37] During the investigation, other players in the relevant market expressed their concern that Illumina could disadvantage Grail’s rivals and exercise control over the early cancer-detection test market.[38] The Commission agreed that Illumina had both the ability and the incentive to foreclose Grail’s rivals,[39] as it was the only credible supplier of the technology required to develop these tests.[40] In practical terms of risk, Illumina could increase NGS prices, decrease the quality of NGS products, or refuse to supply Grail’s competitors.[41] Finally, the Commission found further support for its decision in Illumina’s failure to propose remedies to address competition concerns.[42] In particular, Illumina proposed a license open to NGS suppliers for some of Illumina’s NGS patents as well as a commitment to conclude agreements with Grail’s rivals under the conditions set out in a standard contract.[43] After careful consideration of Illumina’s proposed commitments, the Commission was not persuaded and proceeded by prohibiting Illumina’s acquisition of Grail.[44]
As concerns the consequences of this implemented merger, the Commission could dissolve the concentration[45] or take other appropriate measures under Article 8(4) of the EUMR.[46] Illumina could be subject to multimillion-dollar fines from the Commission if it is determined that Illumina violated rules when it proceeded with the transaction.[47] Illumina declared that it has, for this reason, set aside almost $500 million in contingencies.[48]
Conclusion
Though outcomes have yet to be finalized on either continent, it is fascinating nonetheless that the same facts have so far resulted in contradictory results. Appeals are pending for both Judge Chappell’s decision and the GC’s ruling as to the Commission’s jurisdiction. If the FTC overturns Judge Chappell’s decision–which the FTC has done for past decisions by Administrative Law Judges–Illumina could file an appeal in a federal circuit court.[49] If upheld by the European Court of Justice, the GC’s ruling will certainly have implications on future mergers and acquisitions. There is concern that upon referral by a Member State, the Commission will use its interpretation of Article 22 EUMR to review un-notifiable transactions.[50]
As we wait for conclusions, the possibility of divergent outcomes raises important questions. How is it possible that authorities can reach opposite results when the same parties, facts, and objective to protect competition in the market are involved? Does this case suggest the need for an international panel or organization to deal with Antitrust cases affecting multiple jurisdictions? And perhaps most critical is whether there exists a right conclusion and a wrong one? If so and FTC gets it wrong, American consumers may be subject to serious harms in the absence of regulatory protection. Because the relevant market at issue in this case has serious implications on healthcare, the stakes are very high for American consumers.
[1] Press Release, Illumina, Illumina Acquires GRAIL to Accelerate Patient Access to Life-Saving Multi-Cancer Early-Detection Test (Aug. 18, 2021), https://investor.illumina.com/news/press-release-details/2021/Illumina-Acquires-GRAIL-to-Accelerate-Patient-Access-to-Life-Saving-Multi-Cancer-Early-Detection-Test/default.aspx.
[2] See Lessons from Three Antitrust Agency Losses in Three Merger Trials, Akin Gump Strauss Hauer & Feld LLP, at 2 (Oct. 3, 2022), https://www.akingump.com/a/web/bQAAXzeu8gQR8wjv5fa1UF/4saSpk/antitrust-alert.pdf [hereinafter Akin Gump].
[3] Press Release, Illumina, Administrative Law Judge Rules in Favor of Illumina in FTC Challenge of GRAIL Deal (Sept. 1, 2022), https://www.illumina.com/company/news-center/press-releases/press-release-details.html?newsid=695f87e8-5d42-4caa-9c9c-4539a2630068.
[4] Id. (explaining that the acquisition would help Grail in “obtaining regulatory approval and insurance reimbursement as well as scaling production and distribution of the test”).
[5] See Illumina/Grail – FTC’s First Vertical Merger Challenge in Decades, Crowell & Moring LLP (Apr. 5, 2021), https://www.crowell.com/NewsEvents/AlertsNewsletters/all/Illumina-Grail-FTCs-First-Vertical-Merger-Challenge-in-Decades.
[6] Merger, Black’s Law Dictionary (11th ed. 2019).
[7] See European Commission Press Release IP/22/5364, Mergers: Commission prohibits acquisition of GRAIL by Illumina (Sept. 6, 2022).
[8] See id.
[9] See European Commission Acts to Block Illumina-Grail Transaction Just Days After Judge Rejects FTC Action Against the Deal, Fenwick & West LLP (Sept. 7, 2022), https://www.jdsupra.com/legalnews/european-commission-acts-to-block-9740839/.
[10] See EU disappointed at Illumina decision to close Grail deal despite antitrust probe, Reuters (Aug. 19, 2021), https://www.reuters.com/article/grail-ma-illumina-eu-idUSB5N2GD00T.
[11] See Initial Decision, Illumina, Inc., FTC Docket No. 9401 (Sept. 9, 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/D09401InitialDecisionPublic.pdf.
[12] See Complaint, Illumina, Inc., FTC Docket No. 9401, at 16-17 (Mar. 30, 2021), https://www.ftc.gov/system/files/documents/cases/redacted_administrative_part_3_complaint_redacted.pdf.
[13] See Press Release, Fed. Trade Comm’n, Administrative Law Judge Dismisses FTC’s Challenge of Illumina’s Proposed Acquisition of Cancer Detection Test Maker Grail (Sept. 12, 2022), https://www.ftc.gov/news-events/news/press-releases/2022/09/administrative-law-judge-dismisses-ftcs-challenge-illuminas-proposed-acquisition-cancer-detection [hereinafter Fed. Trade Comm’n].
[14] See Initial Decision, Illumina, Inc., supra note 11, at 143.
[15] See Akin Gump, supra note 2, at 2.
[16] See id.
[17] See Initial Decision, Illumina, Inc., supra note 11, at 149-53.
[18] Fed. Trade Comm’n, supra note 13.
[19] Id.
[20] See Complaint Counsel’s Notice of Appeal, Illumina, Inc., FTC Docket No. 9401 (Sept. 2, 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/D09401CCNoticeofAppeal.pdf.
[21] See European Commission Press Release IP/21/4322, Mergers: Commission starts investigation for possible breach of the standstill obligation in Illumina/ GRAIL transaction (Aug. 20, 2021).
[22] “A ‘concentration’ is the legal combination of two or more firms by merger or acquisition. Although such operations may have a positive impact on the market, they may also appreciably restrict competition, if they create or strengthen a dominant market player.” Mergers, Eur-Lex, https://eur-lex.europa.eu/EN/legal-content/glossary/mergers.html (last visited Nov. 3, 2022, 6:50 PM).
[23] See Illumina’s implemented acquisition of GRAIL is prohibited by Commission, EU Law Live (Sept. 6, 2022), https://eulawlive.com/illuminas-implemented-acquisition-of-grail-is-prohibited-by-commission/# [hereinafter EU Law Live].
[24] See Ephrat Livni, Antitrust regulators expand their global reach., N.Y. Times (Sept. 7, 2022), https://www.nytimes.com/2022/09/07/business/illumina-grail-antitrust.html.
[25] See Case T‑227/21, Illumina, Inc. v. Comm’n, ECLI:EU:T:2022:447, at ¶ 270 (July 13, 2022); Council Regulation 139/2004, art. 22, 2004 O.J. (L 24) 1, 18 (EC) [hereinafter Council Regulation]; European Commission Blocks Illumina/GRAIL a week after FTC’s Administrative Law Judge Rejects FTC’s Challenge, WilmerHale (Sept. 8, 2022), https://www.wilmerhale.com/en/insights/client-alerts/20220908-european-commission-blocks-illumina-grail-a-week-after-ftc-judge-rejects-ftc-challenge [hereinafter WilmerHale].
[26] See European Commission Press Release, supra note 7.
[27] See European Commission Press Release, supra note 7.
[28] See Livni, supra note 24.
[29] See General Court accepts the European Commission’s approach to catching concentrations that do not trigger any national thresholds, Dentons (July 18, 2022), https://www.dentons.com/en/insights/articles/2022/july/18/general-court-accepts-ec-approach-catching-concentrations-do-not-trigger-national-thresholds [hereinafter Dentons].
[30] See European Commission Press Release, supra note 7.
[31] See Dentons, supra note 29.
[32] See Commission Guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to certain categories of cases, at ¶ 11, COM (2021) 1959 final (Mar. 26, 2021).
[33] See id.
[34] See WilmerHale, supra note 25.
[35] See Livni, supra note 24.
[36] See EU Law Live, supra note 23.
[37] See European Commission Press Release, supra note 7.
[38] See id.
[39] See id.
[40] See EU Law Live, supra note 23.
[41] See European Commission Press Release, supra note 7.
[42] See id.
[43] See id.
[44] See id.
[45] If a concentration is implemented that the Commission later declares is incompatible with the common market, the Commission may mandate the dissolution of the concentration, so as to restore the situation to what it was prior to implementation. European Commission Press Release, supra note 7.
[46] European Commission Press Release, supra note 7; Council Regulation, supra note 25, at art. 8(4).
[47] Ricky Zipp, European Commission blocks Illumina-Grail deal to ‘preserve competition’ in cancer test market, MedTechDive (Sept. 6, 2022), https://www.medtechdive.com/news/ec-prohibits-illumina-grail-merger/631214/.
[48] Id.
[49] See WilmerHale, supra note 25.
[50] See Dentons, supra note 29.
