Steven Cernak is a Partner with Bona Law PC in its Detroit, MI office who practiced antitrust law in-house with
General Motors for over 20 years.


All antitrust practitioners have been breathlessly watching developments in the Epic-Apple trial.  Many have also been awaiting a Supreme Court opinion in the Alston-NCAA case.  But few have been paying attention to the FTC’s challenge of the proposed Illumina-Grail merger — and that is a mistake. 

The matter has several elements that should generate plenty of antitrust excitement.  The merger involves cutting-edge medical technology that could save many lives.  Already, the challenge has gone through several procedural twists, with promises of more.  And perhaps most importantly, the challenge is one of the first applications of the new Vertical Merger Guidelines (VMGs), giving us all an opportunity to see how the FTC will treat Elimination of Double Marginalization (EDM) and other vertical merger concepts under that new guidance.  Read on for more.    

The Companies and the Merger

San Diego-based Illumina is a provider of a certain type of DNA sequencing, including instruments, consumables, and reagents.  According to the FTC’s complaint, it is the dominant provider of this DNA sequencing, with one other smaller US provider plus a Chinese provider currently blocked from selling in the US due to patent disputes. 

Grail is one of several companies developing a multi-cancer early detection (MCED) test.  An MCED promises to be able to detect biomarkers associated with up to fifty types of cancer by extracting the DNA from a simple blood sample.  To work, the MCED needs DNA sequencing supply.  According to the FTC complaint, the type of DNA sequencing that works best — and with which Grail and all other MCED developers have been working — is the type supplied by Illumina. 

The parties announced Illumina’s proposed acquisition of Grail in September 2020 and claimed that it would speed global adoption of Grail’s MCED and enhance patient access to the tool.  Also, Illumina told investors that the transaction would benefit Illumina by allowing it to participate in the “high value clinical market,” not just the DNA sequencing market.  Interestingly, Illumina founded Grail back in 2016 before spinning off most of its ownership interest; now, it is buying back that interest for $8 billion. 

The FTC Challenge and Early Procedural Skirmishes

The parties made the requisite Hart-Scott-Rodino filings shortly after the September announcement.  In November, the FTC issued a second request for additional information.  In late March 2021, the FTC challenged the transaction by filing an administrative complaint in front of its own Administrative Law Judge (ALJ).  That hearing will begin August 24. 

In the meantime, the FTC also sought a temporary restraining order and preliminary injunction from the U.S. District Court for the District of Columbia.  That unsurprising move was designed to ensure that the parties did not close the transaction before the FTC’s administrative proceeding had run its course.  The surprising part was the parties’ success in mid-April in getting the case moved to the Southern District of California, near where both parties (and their witnesses) are located. 

The procedural surprises did not end there.  In late April, the European Commission announced that it too would investigate the transaction, even though the transaction did not meet its usual thresholds.  The Commission made this decision at the request of several member states.  The parties have challenged the Commission’s jurisdiction but in the meantime the transaction cannot close until the European situation is resolved.  As a result of the European situation, the FTC decided that its federal court case to block closing was no longer necessary; therefore, in May it announced its intention to dismiss the federal lawsuit.  The result is that an FTC ALJ likely will have the first chance to evaluate the transaction and apply the VMGs when the hearing begins in August.

FTC Complaint and VMGs

As expected under the new VMGs, the FTC’s administrative complaint focuses on Illumina’s potential to foreclose or raise the costs of Grail’s rivals after consummation of the transaction.  First, the Complaint alleges that Illumina will have the ability to foreclose or raise the costs of Grail’s MCED rivals in several ways.  In short, Illumina could refuse to sell, or sell only at higher prices or after significant delay, the DNA sequencing instruments and consumables that, the FTC asserts, have no readily available substitutes.  Expect the parties to dispute those factual allegations and assertions. 

Second, the Complaint alleges that Illumina will have the incentive to take some or all of those steps to foreclose or damage Grail’s rivals.  While the exact details of this allegation are obscured in the redacted version of the Complaint, it seems that the FTC is asserting that any loss of DNA sequencing revenue by Illumina through reduced sales to other MCED competitors will be swamped by the increase in MCED revenues by Grail as it establishes and grows its business at the expense of its crippled rivals. 

On this latter allegation, Illumina’s arguments and documents should prove interesting.  The company’s presentation of the merger to investors does reference the company’s improved ability to “participate more fully in high value clinical market,” which might be corporate-speak for “we will make a lot more money in the downstream market.”  On the other hand, the company has taken a page out of AT&T’s playbook and unilaterally offered all MCED (and other) customers a 12-year supply contract for this type of DNA sequencing with promises of flat and then reduced pricing along with the cooperation necessary for regulatory approval of their MCED products.  Expect the parties to claim that any concerns about Illumina’s incentives to disadvantage Grail’s MCED rivals are ameliorated by the new supply agreement. 

Unfortunately, the Complaint also treats Elimination of Double Marginalization as many of us who commented on the VMGs feared the FTC would.  EDM can occur when an upstream and downstream company merge and one of the margins in transactions between the two entities is eliminated.  It is a common result of vertical mergers and can result in a reduction of the price of the ultimate product to consumers.  When the draft of the VMGs was issued in early 2020, EDM was covered in its own separate section.  It was not clear if EDM would be treated as just another part of the estimate of unilateral effects from the merger that the FTC must show, as many of us advocated, or as some special efficiency that the parties could use to offset any claimed competitive harm.  Despite calls for clarity, the final VMGs removed EDM’s special section but then discussed the concept in both the unilateral effects and efficiencies sections. 

In the Complaint here, the single mention of EDM is a fleeting one in Paragraph 78 dealing with efficiencies and alleging that EDM would not “offset the harm” of the transaction.  It is unclear if the parties can or will argue that EDM was an important consideration in this proposed merger.  If they do make such arguments, it will be interesting to see whether the ALJ treats them as part of the unilateral effects analysis or just another efficiency. 

Finally, the Complaint’s treatment of Grail’s expected position in the MCED market is remarkable, at least to some of us.  Not because the FTC defined a product market and related market — that is exactly what the VMGs suggest.  And not because the FTC alleges that Grail will have a high share (though exactly how high is redacted) of that product market if the merger is allowed to close — that is exactly what all merger analysis requires. 

In most merger analyses, however, the enforcers at least have the benefit of past sales figures to help them with the difficult but necessary task of predicting the future.  Here, however, the MCED market does not yet exist.  Not one of these miracle products has been fully developed, approved, or sold.  Yet, the FTC and the parties will confidently assert their predictions at the hearing and the ALJ will have to decide this key concept.  That is nothing new for antitrust in general and merger review in particular, but another reminder that, perhaps, some regulatory humility about predicting the future of markets, especially those that do not yet exist, should be in order. 


It can be difficult even for executives in the business to predict the level of vertical integration right at any particular time.  It is also difficult for antitrust enforcers and ALJs to predict when a particular level of vertical integration will be anti-competitive.  To learn how these difficult tasks will be handled under the new VMGs, antitrust practitioners should follow the saga of Illumina-Grail.