Call in the Merger Cavalry – How new intervention powers are transforming merger control

1. LIGHT CASTS SHADOWS – THE ILLUMINA JUDGEMENT AND THE NEW POPULARITY OF “CALL-INS”

A "call-in" power is a legal provision that enables a competition authority to intervene in mergers below traditional notification thresholds and to compel the involved companies to file a notification. This power is typically exercised when there is a perceived competitive threat to the domestic market.

In Europe, the importance of such intervention options has grown considerably since the ruling of the European Court of Justice (“ECJ”) of September 3, 2024 in the Illumina/Grail case (C-611/22 P and C-652/22 P). The ECJ clarified that the interpretation of Article 22 of the EUMR, which had been advocated by the European Commission (“Commission”) since 2020, was unlawful. This provision governs the possibility for Member States to refer mergers to the Commission. In a surprising twist, the Commission had begun to accept such referral requests even when neither the Commission – which would have resulted in the case being reviewed directly in Brussels – nor the referring Member State had jurisdiction to review the case.

As previously reported in detail, the ECJ put a stop to this, so that now only those cases can be referred to the Commission under Article 22 EMR for which the referring state actually has jurisdiction. To ensure that potentially critical mergers within the EU do not completely fly under the radar of competition authorities, at least one member state must have its own competence to review them. It can then either use this itself or use it as the basis for a referral to Brussels. The exact legal basis for the competence is irrelevant. In her initial reaction following the ECJ judgement, Margrethe Vestager, the outgoing EU Commissioner for Competition, particularly emphasized national "call-in" powers:

In the last few years, several Member States have introduced provisions allowing them to request the notification of transactions that do not meet national thresholds, in situations where they might have a significant competitive impact. The possibilities for referrals to the Commission under Article 22, in compliance with today's judgement, are thus already more extensive than they were at the time of the Illumina/GRAIL referral.”

From the Commission's perspective, it is consistent to continue pursuing this path. The practice that was overturned by the ECJ was driven by the desire to prevent so-called "killer acquisitions" through comprehensive merger control. This term, which has been a recurring theme in legal and political debates for years, refers to the acquisition of a (small) company with the primary aim of eliminating its competitive potential to protect the acquirer from (future) competitive pressure. This issue is especially relevant in the digital economy and in the pharmaceutical and biotech sectors.

2. THE FRAGMENTED CONTINENT – “CALL-IN” POWERS IN THE EU

It did not take long for Vestager’s words to be followed by action. On October 31, 2024, just a few weeks after the aforementioned statement, the Commission announced that it had accepted a referral request from the Italian competition authority based on Article 22 of the EUMR. The corresponding press release explicitly stated that the Italians had submitted this request only after exercising their national "call-in" power, which required the Parties to notify the merger in Italy. The Italian “call-in” power offers a useful illustration of the characteristics of "call-in" powers in general. In particular, it stipulates that a transaction can be called in that demonstrates the potential to impede competition in a substantial portion of the national territory.

However, the details of “call-in” powers vary considerably. For instance, while Italy, Denmark, Hungary and Sweden make the application of their “call-in” power subject to a further requirement of a certain minimum turnover (that is of course below the general thresholds), Latvia and Slovenia use market share as a criterion. Even within these two categories of additional requirements, there are significant deviations from country to country. For example, while Italy (among other alternatives) requires a combined domestic turnover of the parties to the concentration of more than EUR 567 million, Sweden sets the threshold here at the equivalent of just under EUR 87 million, Hungary at around EUR 12 million and Denmark at just under EUR 7 million. The same principle applies to market-share-related links to the “call-in” power: while in Latvia a cumulative market share of 40% is already sufficient (but at the same time there must also be initial suspicion that the transaction will affect competition), Slovenia requires a combined market share of 60%, but does not impose any further conditions.

Ireland does not require any supplementary criteria at all. It is sufficient that the transaction may potentially affect domestic competition. A similarly broad discretion is found in Lithuania, where the "call-in" power applies if the creation or strengthening of a dominant position or a significant restriction of competition in a relevant market in Lithuania is likely. Cyprus employs a similar approach for mergers of "major importance," where such a classification requires a corresponding decree from the Minister of Energy, Commerce, and Industry, and the competition authority cannot act before such an executive decision is made.

Finally, a wide range of approaches exists regarding the issue of time limits for such intervention powers. For instance, Sweden and Cyprus have no time limits for their "call-in" powers, whereas in countries like Italy, Denmark, and Hungary, they can no longer be used more than six months after the transaction has closed; in Lithuania, the deadline is 12 months.

3. FROM CANADA TO CHINA – “CALL IN” POWERS AS A GLOBAL PHENOMENON

"Call-in" powers are not limited to the legal systems of EU Member States. Threshold-independent review options are also available to competition authorities in EEA countries like Norway and Iceland. While such intervention mechanisms are not the norm, there are already around 30 other jurisdictions outside the EEA that grant their authorities supplementary "call-in" powers. Including the aforementioned European jurisdictions, there are currently about 40 "call-in" merger control regimes – which is nearly a quarter of all jurisdictions that have national merger control in place.

Moreover, this list includes six of the world’s top twenty leading economies, including the number 1 (USA) and 2 (China): China, Japan, Korea, Canada, the USA and Mexico. The conditions for intervention in these counties are also fundamentally linked to the parameters already described. In Canada, for example, transactions may be reviewed whenever there is reason to believe that the merger could lead to a significant impediment or reduction of competition. If the transaction was not notified, the authority even has up to three years after closing to do so. The situation is comparable in Japan, Korea, Mexico and the USA, where the competition authorities can also review transactions that could pose a significant risk of competitive harm to consumers in local or regional markets. In China, national legislation does not even provide for any explicit barriers to a “call in”: the authority is granted broad discretion in this respect for the review of mergers.

4. FROM GAP TO MAZE: HOW “CALL-INS” COMPLICATE MERGER CONTROL

The number of merger control regimes with “call-in” powers is already significant and is still increasing. The Italian competition authority, for example, was only granted the corresponding power in the summer of 2022, and the Irish authority in 2023. And, at least in Europe, there is much to suggest that other member states will follow this trend. Corresponding desires have grown in the wake of the Illumina ruling, as many authorities (including the Commission) assume there is a regulatory gap if merger control adheres solely to quantitative criteria. It is the general fear that “killer acquisitions” might slip through the net. In terms of legal policy, there is therefore a lot of momentum here. Such efforts are already known from the Netherlands, Finland, Czech Republic, Belgium and Greece. Under the new Competition Commissioner Teresa Ribera, the Commission itself could also tackle corresponding reforms – after all, the EUMR (including the thresholds) has remained unchanged for twenty years now.

This momentum is further supported by the fact that the Commission has been far more active in the area of Article 22 of the EUMR than the number of cases actually referred might suggest. Although only three merger control notifications were made in Brussels based on the ECJ-overturned interpretation since March 2021, Commission officials have confirmed that around 100 (!) preliminary reviews were conducted, with 19% focusing on digital markets and 45% on the pharmaceutical/biotech sectors. This not only shows how closely competition authorities wish to scrutinize cases below the general notification thresholds but also that this scrutiny is by no means limited to software and pharmaceuticals.

From a corporate perspective, this trend is concerning. Absent a resolution at the Brussels level, companies would face a fragmented, decentralized system marked by the coexistence of diverse national merger control rules. This situation presents significant challenges, as these rules, while often similar in their requirements, are not uniform. This discrepancy applies to both the substantive criteria for a "call-in" and the time limits within which such powers can be exercised.

Specifically, with regard to the solution mentioned by Commissioner Vestager of making “call-in” powers the basis of future Article 22 referrals, there are also specific follow-up issues:

• The Commission's request for an examination that ultimately covers the entire internal market can only be fully met on the basis of referrals if not only every Member State has the power to “call in”, but also uses that right at the same time as other Member States in the same case. This is because the Commission's examination authority under Article 22 EUMR is derived. The intervention effect of Commission decisions made after such referrals (e.g. the geographic scope of a prohibition) therefore remains limited to the territories of those Member States that have actually made a referral request or effectively joined one.

• Following the Illumina ruling, it is no longer possible to establish a merger control review covering the entire internal market by having a single Member State with "call-in" powers exercise them, with all other Member States then joining the request regardless of their own jurisdiction. The ECJ has clarified that the referral itself, as well as the accession to it, can only be made by those Member States that would have had jurisdiction to review the case under their own national law (see paras. 198, 168 of the judgement).

• And finally, the judgement raises the very fundamental question of whether a referral based on “call-in” powers would be legally permissible at all. From a technical point of view, it is correct that such a “call-in of transactions” establishes merger control jurisdiction and thus, in principle, creates the conditions that the ECJ considers essential for lawful referral requests. However, the ECJ has also made it clear that companies “[...] must be able easily and quickly to identify to which authority they must turn, and within what time limit and in what form [...].” The EUMR should “[...] establish an effective and predictable control system, taking into account the need for legal certainty […]” In addition, the ECJ recognizes that the determination of jurisdiction of “national competition authorities by […] criteria relating to turnover is an important guarantee of foreseeability and legal certainty for the undertakings concerned [...]” (see paras. 209, 203). It is doubtful whether (1) merger control by the Commission, which (2) is based on an interim decision to accept a referral request, (3) the submission of which is at the discretion of a large number of national authorities, (4) which first have to establish their jurisdiction through a further discretionary decision, can meet these strict requirements for legal certainty and predictability. This applies all the more in view of the undefined legal terms contained in the national provisions and the rather disparate detailed requirements regarding the conditions and deadlines for the “call-in”.

5. UNCERTAINTY CALLING – THE FUTURE OF MERGER CONTROL

While "call-in" powers in merger control are not (yet) the standard, they are widespread worldwide and by no means a niche phenomenon. In the EU, there is a clear trend towards their further expansion and increasing use.

This is unfortunate. Despite the ECJ's Illumina ruling, which was designed to enhance legal certainty in this area, merger control is becoming more intricate and unpredictable. In essence, the ECJ has addressed a significant challenge but has also brought subsequent issues to the forefront. It is probable that these issues will be addressed at the EU level through the initiative of the new Commission, and that the merger control regulations will be adjusted. One possible adjustment would be a "call-in" power in favor of the Commission, which, if exercised, would override competing national review powers. However, this would likely be a medium- to long-term solution. A more comprehensive (overall) reform of the EUMR would require a significant political undertaking, including the gathering of majorities and the making of compromises.

In the short term, companies, particularly in Europe, will have to deal with the patchwork of different merger control regimes, including the respective "call-in" powers. When planning and documenting transactions, it is essential to take the resulting uncertainties into account in a risk-oriented manner, particularly in view of the different time limit regimes. Accordingly, they must be taken into account not only in the planning stage, but also in the deal documents. It is also important to monitor any further legal policy developments in the individual member states and to be prepared for the possibility of further referrals to Brussels based on "call-in" powers. The authorities have not yet contested the fact that this approach raises new legal concerns, as demonstrated by the current example from Italy. In the event of any uncertainty, the responsibility for resolving the matter will once again fall upon the ECJ.

Authored by Martin Sura, Elena Wiese, and Florian von Schreitter.