Although it was overshadowed by the Federal Trade Commission (FTC) and U.S. Justice Department’s (DOJ) year-end release of the 2023 merger guidelines, one should also note the abrupt end of the FTC v. Illumina/Grail saga. The saga finished with the FTC’s Dec. 18 press release announcing that Illumina decided on Dec.17 to divest itself of its recently reacquired Grail cancer blood-testing subsidiary.
The press release crowed that the 5th U.S. Circuit Court of Appeals “issued an opinion in the case finding that there was substantial evidence supporting the Commission’s ruling that the deal was anticompetitive.”
True enough. Although the 5th Circuit’s assessment of the FTC’s competitive-harm arguments certainly is open to criticism, that is not the purpose of this commentary.
The FTC also, however, was constrained to note that the circuit court “vacated the Commission’s order and remanded it for further proceedings based on the standard the Commission applied when reviewing one aspect of Illumina’s rebuttal evidence.” In so noting, the commission failed to explain that the reason for the remand went to the heart of Illumina’s argument that its acquisition of Grail was not anticompetitive.
The circuit court’s opinion based its remand on Illumina’s “open offer”—i.e., the long-term supply agreement under which Illumina offered to make its platform available to all cancer blood-test developers. The 5th Circuit agreed with former Commissioner Christine S. Wilson that the commission should have enabled Illumina to show the open offer’s competitive effects as part of its rebuttal to the prima facie case. The FTC had failed to do so, instead claiming that the open offer could only be considered at the remedy stage, following a finding of liability.
The court instead viewed the open offer as “a post-signing, pre-closing adjustment to the status quo implemented by the merging parties to stave off concerns about potential anticompetitive conduct.” The 5th Circuit agreed “with those courts [in other cases involving AT&T and Microsoft] that such agreements should be addressed at the liability—not remedy—stage of the Section 7 proceedings.”
The 5th Circuit’s broader message is that antitrust enforcers should fully consider proposed safeguards designed by merging parties to ensure that possible future competitive harms are avoided. This is important. To the extent that other courts agree with this common-sense message (as they should), antitrust enforcers will no longer be able to ignore actual fixes by merging parties in rendering Section 7 liability assessments.
Given the court’s remand order, why did Illumina immediately acquiesce and state that it would divest itself of Grail? One can only speculate, but it is quite possible that Illumina believed the commission inevitably would ignore the open offer as inadequate (despite the fact that it facially appears to be more than adequate), and once again find liability. Illumina would then have to decide whether to spin off Grail or to appeal, and wait for yet another court decision. Such a decision might well prove unfavorable to Illumina, to the extent the court deferred to an FTC “reasoned fact finding” purporting to show the open order’s inadequacies. Illumina may simply have decided that direct litigation costs, plus legal uncertainty and diversion of corporate resources, militated in favor of cutting its losses and letting Grail go.
In sum, the FTC’s “success” in the Illumina/Grail matter amounts to far less than a full legal victory for the commission. Far more significant is the negative signal that this case sends to sophisticated tech-savvy firms that want to acquire (or reacquire) complementary assets to enhance their offerings and speed up the adoption of welfare-enhancing innovations.
As law & economics experts have pointed out (see, for example, here and here), the FTC’s Illumina/Grail case has been a travesty from start to finish, focusing on possible theoretical harms in future markets while ignoring real harm in existing markets. It may even cost future lives (see here). Let us hope that this supposed FTC “win” is not misinterpreted as a victory for sound merger-enforcement policy. It should properly be viewed as a misguided welfare-inimical antitrust crusade of the sort that should be avoided.