The European Commission has identified certain sectors (in particular pharmaceutical and digital) where innovation is an important parameter of competition(1) and for which, many potentially problematic merger transactions for the concurrence (in particular the ” killer acquisition “(2)) were not previously subject to any control prior to their realization. And this because the turnover of the companies concerned was below the control thresholds set by the National Competition Authority (” ANC “).
It is in this context that in order to extend its control of operations liable to prejudice competition, the Commission adopted a new communication interpretative of Article 22 of the Regulation 139/2004 allowing the referral of merger operations by NCAs to the European Commission.
The effects of the adoption of an interpretative communication of article 22 of Regulation 139/2004
This communication modifies the doctrine on merger control, by opening:
– A new case of examination by the European Commission of referral requests from a NCA: in the event that the latter does not have the competence to examine the case (because the turnover of the companies parties to the ‘operation are below national thresholds) but where the concentration may nevertheless significantly impede competition; and :
– A deadline for NCAs to refer the transaction to the European Commission: this referral can be requested until 6 months after closing of this, the Commission specifying that in exceptional circumstances, characterized in particular by the extent of the competitive problems, a referral beyond this 6-month period could be accepted.
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However, this new doctrine having been adopted through a simple communication not modifying the applicable texts (Regulation 139/2004), it raises several questions with regard to its legal value.
Indeed, the Commission’s communications are in principle considered as tools for ” soft law “, aimed solely at contributing to the interpretation and clarification of European law by specifying the content of legal texts.
However, this communication does not content itself with clarifying or enriching Regulation 139/2004 since it creates a completely new control ex post concentration operations (i. e. after their completion), not contemplated by said regulation. The legal value of this communication therefore remains very uncertain and could be contested.
In any case, the French competition authority has already applied this new doctrine by referring to the Commission the takeover of Grail – an innovative biotechnology company – by Illumina, the world leader in genomic sequencing.
The authority estimated that at the end of the operation, Illumina could potentially make access to genomic sequencers for Grail’s competitors more complex by increasing their price or degrading their quality. However, these products constitute a necessary material for Grail and its competitors to develop its activities in the field of cancer detection tests.
In view of Illumina’s weight in the genomic sequencing sector, this strategy could significantly impact the competition in the field of cancer screening tests. On April 21, 2021, the Commission therefore announced the opening of a procedure to examine this buyback transaction.
Practical consequences for businesses
This new communication thus generates a profound upheaval for the legal certainty of companies which had hitherto been acquired. In fact, concentration operations whose turnover was below the notification thresholds escaped this notification obligation and could therefore be fully carried out. However, companies will have to anticipate and integrate this new potential control into their operations, even several months after the closing of the operation.
In this context, legal and financial managers will have to to distinguish among the operations planned or carried out those which could be referred to the Commission and examined under the merger controls and see potentially prohibited because they hinder competition.
Therefore, for any merger carried out in innovative sectors, the companies themselves will have to analyze whether the operation could harm competition, before contacting the ANC, in order to ensure that this operation will not lead to not a control ex post of the Commission.
The development of decision-making practice and referral cases will certainly make it possible to clarify the analysis in the coming months. In the meantime, it is necessary to be very attentive to this situation and for an operation below national thresholds, to ascertain the reasons why the parties consider that the control ex post should not intervene.
[1] See in particular the acquisition of WhatsApp by Facebook in 2014 which was valued at an amount of 17.5 billion euros, but which was not controllable by the Commission (and in most of the Member States of the European Union) because the turnover achieved by the target remained very limited.
[2] Operation by which a company acquires an innovative start-up in order to eliminate this target
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