The Amici Curiosi – And other developments in Illumina/GRAIL

In this post, we share the latest developments in the Illumina/GRAIL merger. This case involves the now completed acquisition by Illumina of GRAIL, a company that has developed a test, which has shown the ability to detect multiple cancers from a single blood draw. GRAIL was founded by Illumina but spun off in 2016. Illumina is now trying to reacquire the company, but this is facing objections from the US Federal Trade Commission (FTC) and the European Commission.

GRAIL’s new technology could be ground-breaking, as it can detect multiple types of cancer in asymptomatic patients at very early stages using DNA sequencing. If approved and put to use, it could save millions of lives. The issue from a competition perspective is not that Illumina and GRAIL are competitors, but that Illumina provides the DNA sequencing technology on which GRAIL’s cancer detection tests rely. The FTC and European Commission appear to be worried that once it owns GRAIL, Illumina may foreclose other manufacturers of cancer detection tests who may also need Illumina’s sequencing technology.

Where did we leave it?

We last covered the deal in our September update. As mentioned there, the deal marks the first referral from EU Member States to the Commission under the new guidance in respect of Article 22 of the EU Merger Regulation (EUMR), which was hastily adopted between the French competition authority making the referral request, and the Commission accepting the referral in April 2021. The Commission referred the deal to an in-depth Phase II investigation in July. Illumina subsequently challenged the referral in the EU’s General Court. Illumina and GRAIL decided to complete the merger in August despite the Commission having opened a Phase II investigation and the Commission opened a gun jumping inquiry just two days later.

In the US, the FTC’s case against the merger kicked off in court in August, with the agency maintaining that it is seeking to unwind the merger.

What happened next?

This case is far from over, but there are a few further developments.

Europe

First, the Computer & Communications Industry Association (the “CCIA”) tried to intervene in support of Illumina in the General Court. The CCIA is a membership organisation whose members include Amazon, Apple, Facebook, Google, Intel and others. It does not have pharma or medical devices companies among its members. The CCIA submitted, inter alia, that Illumina’s appeal raises essential questions of law in relation to the interpretation of Article 22 that affect its members and the digital sector, in particular the interpretation that the Commission can accept a referral request even if the merger does not require notification in the referring Member State. The CCIA maintained that the Commission’s interpretation is targeted at transactions in the digital sector which fall below the EUMR thresholds and the national merger control systems, creating significant legal uncertainty.

However, the President of the Third Chamber of the General Court on 4 October dismissed the application to intervene. Among other things, he held that the CCIA had not established that the interests of its members would be affected, as it is not sufficient that the judgment that will follow the appeal will influence the way the Commission approaches Article 22 more generally. He added that if the Court were to accept that an association representing the digital sector has an interest in intervening in a case such as this one, this would have the consequence that that association could intervene in the majority of proceedings before the Court involving the interpretation of a provision of EU competition law, since most provisions in that field potentially apply to the digital sector.

Second, on 29 October the European Commission took the unprecedented step of adopting interim measures to restore and maintain the conditions of effective competition following the completion of the deal which the Commission says breaches the standstill obligation in the EUMR. This is the first time the Commission adopts interim measures following early completion of a transaction.

According to the Commission’s press release, the interim measures provide that:

  • GRAIL shall be kept separate from Illumina and be run by an independent hold separate manager, exclusively in the interest of GRAIL (and not of Illumina).
  • Illumina and GRAIL are prohibited from sharing confidential business information.
  • Illumina must provide the additional funds necessary for the operation and development of GRAIL.
  • Business between the parties is to be undertaken at arm’s length, without unduly favouring GRAIL to the detriment of its competitors.
  • GRAIL shall actively work on alternative options to the transaction to prepare for the possible scenario in which the deal would have to be undone in case the Commission were to declare the transaction incompatible with the internal market.

Readers should in particular note the final point, where GRAIL is instructed to consider its alternatives. Although interim measures are not often imposed in the EU, the UK has a lot of experience with ‘interim enforcement orders’, which are a similar tool. This is because the UK has a voluntary notification regime and can call in mergers that were not notified to it up to four months after completion. It will routinely impose an interim enforcement order to keep the two firms engaged in the transaction separate from each other. Interestingly, such orders tend to cover the first four points in the Commission’s interim measures, but the CMA tends not to order a firm to actively work on alternative solutions. This element of the interim measures can therefore be seen as novel.

The measures will be applicable until the outcome of the Commission’s Phase II investigation. Their compliance will be monitored by a Monitoring Trustee. Should the parties fail to comply with any of the measures, they would face the risk of penalty payments of up to 5% of their average daily turnover and/or fines of up to 10% of their annual worldwide turnover.

In fairness to Illumina, the deal, signed in September 2021, would expire before the Commission completed its Phase II review, and the parties are unlikely to have included Commission clearance as a condition precedent as the transaction did not meet the EU notification thresholds. Illumina therefore did find itself between a rock and a hard place and appears to have accepted the risk of a penalty for the sake of getting the deal through. Its General Counsel is clear that ultimately it will “abide by any outcome ultimately reached by the courts”.

USA

A different kind of intervention request was made in the US proceedings against the case, with a group of 23 law professors, economists and former officials requesting on 22 October 2021 to be given leave to file an amicus brief as amici curiae (or curiosi?) in support of Illumina and GRAIL. The group’s motion attaches their proposed amicus brief, which sets out several reasons why the FTC should not intervene against the merger except on compelling evidence that the merger is likely to substantially lessen competition, notwithstanding the procompetitive benefits the group identifies. They are also concerned that the FTC will import from horizontal-merger law a presumption of competitive harm, especially given the risks to consumers of an imprudent decision to unwind this merger.

The FTC moved on 29 October 2021 to have the motion denied. According to the FTC, the academics and former officials have failed to provide a clear and adequate explanation of how they have unique information or a novel perspective to offer and whether they have any pecuniary or non-pecuniary relationship to Illumina or GRAIL. The FTC even goes as far as to state that “[t]he haziness of Amici’s interest in this matter is particularly concerning in light of Respondents’ efforts to engage in a widespread lobbying campaign to shape perceptions of this matter”, adding that the academics and former officials must as a minimum disclose whether they were specifically asked to submit the brief by Illumina or GRAIL or any firm working for them, whether Illumina or GRAIL provided any funding to them, and who paid for the law firm that assisted in submitting the brief.

It is not clear yet when there will be a decision on the motion.

[UPDATE 10 November: the motion has been denied]

What is coming down the track?

There are four key decisions that we can expect over the next few months:

  • The General Court’s judgment on Illumina’s appeal. This of course has the potential to scupper the Commission’s investigation in which case there is no further European restriction on this transaction (although note that the UK’s CMA can call in a completed merger up to four months after completion – surely not?). The timing of the judgment is not currently known, but the Court will be aware of the Commission’s own deadline and the fact it would be cleanest to reach a judgment before that.
  • The Commission’s decision whether to clear or block the merger, which currently has a deadline of 4 February 2022.
  • The Commission’s decision whether to impose a penalty (of up to 10% of worldwide turnover) on Illumina for completing the acquisition in breach of the standstill obligation. It is likely that the Commission will wait until it has the General Court’s judgment challenging its jurisdiction, although its ability to impose a penalty is not automatically suspended pending the Court procedure.
  • Judgment in the US proceedings against the merger, which is according to the San Diego Union Tribune, which bases itself on an Illumina investor conference call, expected in the first quarter of 2022.

[The author is a Partner at Geradin Partners and worked previously at the UK Competition and Markets Authority. All views expressed above are personal. Photo by Christian Lue on Unsplash]

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