Case: 23-60167 Document: 138 Page: 1 Date Filed: 06/12/2023
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`No. 23-60167
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`In the United States Court of Appeals
`for the Fifth Circuit
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`ILLUMINA, INC. AND GRAIL, INC.,
`Petitioners,
`vs.
`FEDERAL TRADE COMMISSION,
`Respondent.
`
`BRIEF OF AMICUS CURIAE TECHFREEDOM
`IN SUPPORT OF PETITIONERS
`
`On Petition for Review from the Federal Trade Commission, Docket No. 9401
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`Bilal Sayyed
`TECHFREEDOM
`1500 K Street NW Floor 2
`Washington, DC 20005
`(771) 200-4497
`bsayyed@techfreedom.org
`Attorney for Amicus Curiae
`TechFreedom
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`No. 23-60167
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`In the United States Court of Appeals
`for the Fifth Circuit
`
`ILLUMINA, INC. AND GRAIL, INC.,
`Petitioners,
`vs.
`FEDERAL TRADE COMMISSION,
`Respondent.
`
`BRIEF OF AMICUS CURIAE TECHFREEDOM
`IN SUPPORT OF PETITIONERS
`
`On Petition for Review from the Federal Trade Commission, Docket No. 9401
`
`
`
`
`
`Bilal Sayyed
`TECHFREEDOM
`1500 K Street NW Floor 2
`Washington, DC 20005
`(771) 200-4497
`bsayyed@techfreedom.org
`Attorney for Amicus Curiae
`TechFreedom
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`Case: 23-60167 Document: 138 Page: 2 Date Filed: 06/12/2023
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`CERTIFICATE OF INTERESTED PERSONS
`Pursuant to Circuit Rule 29.2, the undersigned counsel of record
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`certifies that, in addition to the persons and entities listed in the
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`Petitioners’ Certificate of Interested Persons, the following listed
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`persons and entities as described in the fourth sentence of Fifth
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`Circuit Rule 28.2.1 have an interest in the outcome of this case. These
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`representations are made in order that the Judges of this Court may
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`evaluate possible disqualification.
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`Amicus Curiae:
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`TechFreedom
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`Counsel for Amicus Curiae:
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`Bilal Sayyed
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`TechFreedom has no parent corporation. No publicly held
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`company has any ownership interest in TechFreedom.
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`/s/ Bilal Sayyed
`Bilal Sayyed
`Attorney for Amicus Curiae
`TechFreedom
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`June 12, 2023
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`Case: 23-60167 Document: 138 Page: 3 Date Filed: 06/12/2023
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`TABLE OF CONTENTS
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`
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`INTEREST OF AMICUS CURIAE ....................................................... 1
`INTRODUCTION & SUMMARY OF ARGUMENT ............................ 3
`ARGUMENT .......................................................................................... 7
`The Commission Has Not Shown Cognizable Harm in
`I.
`the Relevant Product Market ....................................................... 7
`A. Commercialization of MCED Tests .................................... 8
`B. Research and Development of MCED Tests .................... 13
`II. The Commission’s Evaluation of the Likelihood and
`Magnitude of Illumina’s Efficiency Claims Was
`Insufficient and Biased Against Efficiency Claims in
`Vertical Mergers ......................................................................... 15
`A. Consideration of Efficiency Claims is a Required
`Step in the Evaluation of the Competitive Effects
`of a Merger ......................................................................... 15
`B. Vertical Mergers May Generate Significant
`Efficiencies ......................................................................... 19
`The Commission Predetermined That Illumina’s
`Efficiencies Were Insufficient or Irrelevant to Its
`Rebuttal of Plaintiff’s Allegations .................................... 20
`D. The Commission’s Analysis of Illumina’s
`Efficiency Claims Was Pre-Determined by its
`Bias Against Efficiency Claims ........................................ 22
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`C.
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`Case: 23-60167 Document: 138 Page: 4 Date Filed: 06/12/2023
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`E. Evaluation of Efficiency Claims and
`Anticompetitive Effects Should Be Symmetrical
`in Vertical Mergers ............................................................ 27
`III. The Commission’s Skepticism of Illumina’s Open-Offer
`is Inconsistent with the Agency’s Long Practice of
`Accepting Similar Commitments ............................................... 29
`CONCLUSION ..................................................................................... 35
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`Case: 23-60167 Document: 138 Page: 5 Date Filed: 06/12/2023
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`TABLE OF AUTHORITIES
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` Page(s)
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`CASES
`In the Matter of B.A.T. Industries, Ltd.,
`104 F.T.C. 852 (1984) ...................................................................... 11
`Broadcast Music, Inc., v. Columbia Broad. Sys., Inc.,
`441 U.S. 1 (1979) ............................................................................. 17
`Brown Shoe Co. v. United States,
`370 U.S. 294 (1962) ......................................................................... 16
`Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.
`429 U.S. 477 (1977) ......................................................................... 17
`Chicago Bridge & Iron Co. N.V. v. FTC,
`534 F.3d 410 (5th Cir. 2008) ............................................... 15, 16, 26
`Continental T.V., Inc. v. GTE Sylvania Inc.,
`433 U.S. 36 (1977) ........................................................................... 17
`In the Matter of Fresenius Med. Care AG & Co.,
`Docket No. C-4236 (F.T.C. Oct. 20, 2008) ...................................... 34
`FTC v. Atlantic Richfield Co.,
`549 F.2d. 289 (4th Cir. 1977) .......................................................... 10
`FTC v. H.J. Heinz Co.,
`246 F.3d 708 (D.C. Cir. 2001) ......................................................... 18
`FTC v. Meta Platforms,
`2023 WL 2346238 (N.D. Cal. Feb. 3, 2023) .................................... 11
`FTC v. Penn State Hershey Med. Ctr.,
`838 F.3d 327 (3rd Cir. 2016) ........................................................... 19
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`Case: 23-60167 Document: 138 Page: 6 Date Filed: 06/12/2023
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`FTC v. The Procter & Gamble Co.,
`386 U.S. 568 (1967) ......................................................................... 16
`FTC v. Sanford Health,
`926 F.3d 959 (8th Cir. 2019) ........................................................... 18
`FTC v. Steris Corp.,
`133 F. Supp. 3d. 962 (N.D. Ohio 2015) ........................................... 11
`FTC v. Tenet Health Care Corp.,
`186 F.3d 1045 (8th Cir. 1999) ......................................................... 18
`FTC v. Univ. Health, Inc.,
`938 F.2d 1206 (11th Cir. 1991) ....................................................... 18
`In the Matter of Gen. Elec. Co.,
`Docket No. C-4411 (F.T.C. Aug. 27, 2013) ..................................... 33
`In the Matter of Illumina, Inc. & GRAIL, Inc.,
`No. 9401 (Sept. 9, 2022) .............................................................. 4, 25
`In the Matter of Intel Corp.,
`Docket 9341 (F.T.C. Oct. 29, 2010) ................................................. 35
`Leegin Creative Leather Prods. v. PSKS, Inc.,
`551 U.S. 877 (2007) ......................................................................... 17
`Mercantile Texas Corp. v. Board of Governors,
`638 F.2d 1255 (5th Cir. 1981) ..................................................... 9, 10
`NCAA v. Alston,
`141 S. Ct. 2141 (2021) ..................................................................... 17
`In the Matter of Northrop Grumman Corp. & Orbital ATK, Inc.,
`Docket No. C-4652 (F.T.C. Dec. 3, 2018) ........................................ 32
`St. Alphonsus Med. Ctr.-NAMPA v. St. Luke’s,
`778 F.3d 775 (9th Cir. 2015) ........................................................... 19
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`Case: 23-60167 Document: 138 Page: 7 Date Filed: 06/12/2023
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`State Oil v. Khan,
`522 U.S. 3 (1997) ............................................................................. 17
`Tenneco, Inc. v. FTC,
`689 F.2d 346 (2d Cir. 1982) ....................................................... 10, 26
`In the Matter of Teva Pharma. Indus. & Allergan PLC,
`Docket No. C-4589 (F.T.C. Sept. 7, 2016) ...................................... 33
`United States v. Anthem, Inc.,
`855 F.3d 345 (D.C. Cir. 2017) ......................................................... 18
`United States v. AT&T,
`310 F. Supp. 3d (D.D.C. 2018), aff’d 916 F.3d 1029 (D.C. Cir. 2019)
` .............................................................................................. 15, 27, 29
`United States v. AT&T Inc.,
`310 F. Supp. 3d 161 (D.D.C. 2018) ..................................... 27, 29, 30
`United States v. Marine Bancorporation, Inc.,
`418 U.S. 602 (1974) ........................................................................... 9
`United States v. Philadelphia National Bank,
`374 U.S. 321 (1963) ......................................................................... 16
`In the Matter of Valero, L.P.,
`Docket No. C-4141 (F.T.C. July 22, 2005) ...................................... 34
`Yamaha Motor Co. v. FTC,
`657 F.2d 971 (8th Cir. 1981) ........................................................... 10
`STATUTES
`5 U.S.C. § 706(2)(A) ............................................................................. 26
`Clayton Act § 7 ..................................................................... 9, 16, 19, 27
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`Case: 23-60167 Document: 138 Page: 8 Date Filed: 06/12/2023
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`ARTICLES, SPEECHES, & AGENCY POLICIES
`Background Note by the Secretariat, OECD, Vertical Mergers in the
`Technology, Media and Telecom Sector (June 7, 2019), at 27,
`https://one.oecd.org/document/DAF/COMP(2019)5/en/pdf ............ 28
`FTC, The FTC’s Merger Remedies 2006-2012, A Report of the Bureaus
`of Competition and Economics (Jan. 2017) .............................. 30, 31
`Michael Salinger, Is it Live or Is it Memorex? Models of Vertical
`Mergers and Antitrust Enforcement (Sept. 7, 2005) ...................... 22
`Michael Vita & Paul Yde, Comment to the Antitrust Modernization
`Commission, Merger Efficiencies & Pass-Through Analysis (Mar.
`16, 2005) ........................................................................................... 24
`Statement of Chair Lina M. Khan, Commissioner Rohit Chopra, &
`Commissioner Rebecca Kelly Slaughter on the Withdrawal of the
`Vertical Merger Guidelines (Sept. 15, 2021) .................................. 21
`TechFreedom, Comments on Request for Information on Merger
`Enforcement, Docket No. FTC-2022-0003 (Apr. 21, 2022) ............ 19
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`Case: 23-60167 Document: 138 Page: 9 Date Filed: 06/12/2023
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`INTEREST OF AMICUS CURIAE1
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`TechFreedom is a nonprofit, nonpartisan think tank based in
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`Washington, D.C. TechFreedom’s employees have extensive expertise in
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`the laws and regulations enforced by the Federal Trade Commission.
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`Bilal Sayyed, Senior Competition Counsel for TechFreedom, served
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`as Director of the Office of Policy Planning at the FTC from 2018-2021.
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`“During his tenure, the Office of Policy Planning (OPP) initiated and
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`managed the Chairman’s Hearings on Competition and Consumer
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`Protection in the 21st Century. After the Hearings, staff of the Bureaus
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`of Competition and Economics and OPP (working with the Department
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`of Justice) drafted the first joint Vertical Merger Guidelines, and
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`prepared the Vertical Merger Commentary. In addition, under Sayyed’s
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`leadership, OPP initiated the Commission’s inquiry into over 500
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`acquisitions by Google, Facebook, Amazon, Apple, and Microsoft.” FTC,
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`FTC Chairman Simons Announces his Resignation and the Departure of
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`No party’s counsel authored any part of this brief. No one, apart
`1
`from TechFreedom and its counsel, contributed money intended to fund
`the brief’s preparation or submission. All parties have consented to the
`brief being filed.
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`Case: 23-60167 Document: 138 Page: 10 Date Filed: 06/12/2023
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`Senior Staff (Jan. 19, 2021), https://www.ftc.gov/news-events/news/press-
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`releases/2021/01/ftc-chairman-simons-announces-his-resignation-
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`departure-senior-staff. Sayyed has continued to focus on mergers and the
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`FTC as Senior Competition Counsel at TechFreedom. See, e.g., Bilal
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`Sayyed, Actual Potential Entrants, Emerging Competitors, and the
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`Merger Guidelines: Examples from FTC Enforcement 1993-2022 (Dec. 20,
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`2022), https://ssrn.com/abstract=4308233.
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`Case: 23-60167 Document: 138 Page: 11 Date Filed: 06/12/2023
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`INTRODUCTION & SUMMARY OF ARGUMENT
`In September 2020, Illumina, Inc., (“Illumina”) and GRAIL Inc.
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`(now Grail, LLC), (both “Grail”) entered into an agreement to merge; they
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`consummated their merger (the “transaction” or “merger”) in August
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`2021. Prior to their merger, the firms were in a vertical relationship.
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`Grail is the only firm that has commercialized—that is, brought to
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`market—a multi-cancer early detection (“MCED”) test. Illumina is an
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`allegedly dominant supplier of next-generation sequencing (“NGS”)
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`platforms, a “key” or “critical” input into the development and use of
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`MCED tests. NGS platforms are an upstream input into downstream
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`MCED tests.
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`The Commission found that the merger has increased Illumina’s
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`incentive (combined with Illumina’s pre-merger existing ability) to
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`foreclose access to Illumina’s NGS platform by those firms researching,
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`attempting to develop, and attempting to commercialize MCED tests in
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`competition with Grail, and that Illumina, in dealing with Grail’s
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`competitors, will have access to competitively sensitive information that
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`it could use to affect existing and potential competition.
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`Case: 23-60167 Document: 138 Page: 12 Date Filed: 06/12/2023
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`Anticipating such concerns, Illumina has already implemented a
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`12-year supply commitment (the “Open Offer”) for firms engaged in the
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`research, development, and intended commercialization of MCED tests.
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`Initial Decision at 98, In the Matter of Illumina, Inc. & GRAIL, Inc., No.
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`9401 (Sept. 9, 2022) (“IND”). Price and non-price commitments aim to
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`address customers’ (and Commission) concerns about access to Illumina’s
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`NGS platforms. Illumina has previously indicated a willingness to enter
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`into a consent order consistent with the terms of the Open Offer but the
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`Commission refused. Id. at 119; see also Opinion of the Commission at
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`62-63, In the Matter of Illumina, Inc. & GRAIL, Inc., No. 9401 (Mar. 31,
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`2023) (“Comm.Opp.”).
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`The Commission objects to the merger, because, in part, it might
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`slow or prevent the future commercialization of MCED tests by firms that
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`have not yet commercialized an MCED test—that is, all firms except
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`Grail. The Commission believes the merger may also slow innovation
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`competition in the market for MCED test. But the Commission has failed
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`to show harm under either theory, because it has failed to show any firm
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`other than Grail has a reasonable probability of commercializing an
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`Case: 23-60167 Document: 138 Page: 13 Date Filed: 06/12/2023
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`MCED test, and because Illumina, even if it does foreclose access to its
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`NGS platforms, has the strong incentive to continue to rapidly improve
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`Grail’s MCED test.
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`The Commission’s Opinion takes a cramped view of the possible and
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`likely efficiencies and benefits associated with the transaction. The
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`Commission applies no such skepticism, nor the same exacting standard,
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`to claims of possible future competition, or to its theoretical concerns
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`about the transaction limiting innovation in MCED tests. This selective
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`skepticism is inconsistent with the theoretical and empirical work
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`showing vertical mergers may reasonably be expected to generate
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`efficiencies and are less likely to have anticompetitive effects than
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`horizontal mergers.
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`The Commission’s dismissal of the Open Offer and rejection of
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`Illumina’s offer to enter into a consent order incorporating its terms is
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`remarkable. The Commission routinely accepts such commitments to
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`address concerns otherwise raised by a vertical merger; similarly, it has
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`accepted such remedies requiring an alleged monopolist to deal with a
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`rival.
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`Case: 23-60167 Document: 138 Page: 14 Date Filed: 06/12/2023
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`To correct the Commission’s failures to properly balance the
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`potential harms from the transaction and the potential benefits of the
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`transaction, the Commission’s decision should be reversed and the order
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`to divest Grail vacated. The court should direct the Commission to accept
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`Illumina’s previously expressed willingness to memorialize the Open
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`Offer into an Order. The Court should allow the FTC to identify changes,
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`consistent with past practice, to improve the scope, oversight, and
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`enforcement
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`of
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`Illumina’s
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`open-offer
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`commitments,
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`including
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`incorporation of a monitor to enforce, audit, and report on compliance
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`with such an order.
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`Case: 23-60167 Document: 138 Page: 15 Date Filed: 06/12/2023
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`I.
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`ARGUMENT
`The Commission Has Not Shown Cognizable Harm in the
`Relevant Product Market
`The Commission identifies the relevant antitrust market as “the
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`research, development, and commercialization of MCED tests” in the
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`United States. Comm.Opp. at 2, 25. The Commission
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`further
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`distinguishes among these stages of activity and between harm to
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`ongoing research and development activity and harm to future
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`commercialization of an MCED test. For example:
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`• “[T]his case involves alleged harm to competition among firms
`currently engaged in research and development of MCED tests for
`subsequent commercial sale.” Id. at 25 (emphasis added).
`• “The record shows that MCED developers are engaged in current
`R&D competition with GRAIL and with each other as they pursue
`commercialization of their MCED tests . . . .” Id. at 30 (emphasis
`added).
`• “Complaint Counsel have demonstrated the existence of current
`competition in the research and development of MCED tests. Cancer
`screening companies have spent hundreds of millions of dollars in
`the research and development of MCED tests with the same
`objective—to detect multiple cancers in asymptomatic patients by
`analyzing biomarkers in the blood. These companies are seeking to
`improve their tests by validating additional cancers and adding
`tissue of origin capabilities while improving sensitivity, specificity,
`and positive predictive value. . . . The ALJ correctly characterized
`this activity as ‘present[] compet[ition].’ . . . [I]f our relevant market
`definition failed to account for current R&D competition among
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`Case: 23-60167 Document: 138 Page: 16 Date Filed: 06/12/2023
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`firms seeking to commercialize MCED tests, it would also fail to
`detect threats to that competition.” Id. at 30-31 (emphasis added)
`(internal citations omitted).
`• “[T]he harm to competition operates by foreclosing current,
`competing R&D efforts that are pointed toward eventual
`commercialization.” Id. at 55 (emphasis added).
`• “The harm to R&D competition is current and immediate, not
`speculative, although the effects on commercialized sales may not be
`felt immediately.” Id. at 56 (emphasis added).
`• “By thwarting rivals’ current R&D, the challenged foreclosure
`deprives the market not just of 2-3 cancer tests that might be
`commercialized today but, more importantly, the more extensive
`screening tests that are under development. If today’s foreclosure
`wipes a rival off the post R&D playing field, it fosters diversion from
`what would have been the rivals’ ultimate product to Galleri [the
`Illumina-Grail product].” Id. at 55 (emphasis added).
`In short, the Commission appears to distinguish between two types of
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`harm that may occur in its relevant market: harm to current R&D efforts,
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`sometimes equated with “innovation,” and harm to the intended result of
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`those R&D efforts: the introduction or improvement of commercial
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`MCED tests to compete with Grail’s commercial MCED test, Galleri.
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`A. Commercialization of MCED Tests
`Only Grail, through its Galleri product, has a commercial MCED
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`test. “[O]nly Galleri has been released to the market while other products
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`are in various stages of development and testing.” Id. at 31. (Galleri has
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`Case: 23-60167 Document: 138 Page: 17 Date Filed: 06/12/2023
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`been clinically shown to detect at least seven cancers; Grail and Illumina
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`claim it can identify over fifty. Id. at 13, 54). The Commission identifies
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`seven firms that Illumina allegedly has the incentive and ability to delay
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`or otherwise hinder becoming
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`future competitors to Grail
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`for
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`commercialized MCED tests. These are potential, not actual, competitors
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`in the sale of commercialized MCED tests. Thus, any harm related to the
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`commercialization of MCED tests—delays or worse—are harms to, or
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`foreclosure of, potential competition.
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`Courts developed the potential competition doctrine in horizontal
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`merger cases, but its required showing of likely entry by a potential
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`competitor also applies here. To violate Section 7, elimination of a
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`potential (future) entrant must result in the loss of future competition
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`that is “sufficiently probable and imminent”; “remote possibilities [of lost
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`competition] are not sufficient to satisfy the test set forth in [Section] 7.”
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`United States v. Marine Bancorporation, Inc., 418 U.S. 602, 623, 628, 633,
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`642 (1974). In Mercantile Texas Corp. v. Board of Governors, this Court
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`reviewed an order of the Federal Reserve Board to invalidate a proposed
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`banking merger involving, arguably, a potential competitor; the Court
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`Case: 23-60167 Document: 138 Page: 18 Date Filed: 06/12/2023
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`required a showing of reasonable probability that the firm would have
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`entered the market absent the merger, i.e., a likelihood greater than 50%.
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`638 F.2d 1255, 1268 (5th Cir. 1981).
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`Other appellate courts have adopted an even higher standard in
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`interpreting Marine Bancorp. In Tenneco, Inc. v. FTC, the Second Circuit
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`indicated that “to establish a violation . . . based upon the elimination of
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`actual potential competition, . . . the Commission must show [among
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`other things] that, absent its acquisition of Monroe [ ], Tenneco would
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`likely have entered the market in the near future either de novo or
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`through toehold acquisition.” 689 F.2d 346, 352 (2d Cir. 1982) (emphasis
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`added). Yamaha Motor Co. v. FTC defined the relevant burden
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`differently: “would Yamaha, absent the joint venture, probably have
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`entered the U.S. outboard-motor market independently…?” 657 F.2d 971,
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`977 (8th Cir. 1981) (emphasis added). FTC v. Atlantic Richfield Co.
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`articulated a slightly different standard: “the proof . . . fails to show a
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`significant commitment at the decisional level that Arco was seriously
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`considering original entry . . . or entry by toehold acquisition.” 549 F.2d.
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`289, 296-97 (4th Cir. 1977) (emphasis added). In the Matter of B.A.T.
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`Case: 23-60167 Document: 138 Page: 19 Date Filed: 06/12/2023
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`Industries, Ltd., the Commission, in evaluating whether a merger
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`removed a potential competitor from the relevant market, required the
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`plaintiff to show clear proof that an acquiring firm would have entered
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`the market but-for the merger. 104 F.T.C. 852, 917-18 (1984).
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`The most recent district court decision required “a likelihood
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`noticeably greater than fifty percent.” See FTC v. Meta Platforms, 2023
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`WL 2346238, at *22 (N.D. Cal. Feb. 3, 2023); see also FTC v. Steris Corp.,
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`133 F. Supp. 3d. 962, 966 (N.D. Ohio 2015) (evidence must show that,
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`absent the merger the potential entrant “‘probably’ would have entered”
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`the relevant market).
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`In finding harm to potential or future competition here, the
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`Commission ignored the requirement to show any firm but Grail had a
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`reasonable probability of commercializing an MCED test. Grail’s
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`allegedly future competitors in a market for commercialized MCED tests
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`meet neither the test for imminence nor reasonable probability; the
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`Commission does not even try to show either. It assumes that, because
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`they are engaged in research and or attempts to develop an MCED test
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`that they will succeed in commercializing an MCED test.
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`Case: 23-60167 Document: 138 Page: 20 Date Filed: 06/12/2023
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`The Commission identifies the status of the competitive efforts of
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`seven firms: (i) Exact/Thrive (“developing an MCED test” and “preparing
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`towards a registrational trial”); (ii) Guardant (describing R&D efforts for
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`a single cancer test); (iii) Singlera (“working on developing four single-
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`cancer screening tests and an MCED test”); (iv) Freenome (possibly
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`relevant information redacted as confidential); (v) Natera (same); (vi)
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`Helio Health (one single cancer test); and, (vii) a company whose name
`
`and other information is redacted and the likelihood of whose entry into
`
`the market is not publicly described and for whom we make no
`
`representations). Comm.Opp. at 14-19.
`
`The Commission has neither established, nor made findings
`
`suggesting, a reasonable probability of commercialization of MCED tests
`
`by any firm other than Grail. Without showing that any firm would,
`
`pre-merger, have had a reasonable probability of commercializing an
`
`MCED test, the Commission cannot, as a matter of law, show any
`
`cognizable harm from delayed or foreclosed commercialization of an
`
`MCED test. No harm, no foul.
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`- 12 -
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`Case: 23-60167 Document: 138 Page: 21 Date Filed: 06/12/2023
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`B. Research and Development of MCED Tests
`The Commission opinion articulates an alternative theory of harm
`
`that appears to be its primary theory of harm: Grail, and other firms, are
`
`engaged in innovation competition to improve on existing or future
`
`commercialized MCED tests, and the merger gives Illumina an ability
`
`and incentive to affect the pace and breadth of that competition. Even if
`
`no firm other than Grail commercializes a MCED test, the Commission
`
`alleges that Illumina’s efforts to innovate, improve, or expand Grail’s
`
`commercialized MCED tests may be slowed if Grails’ competitors slow
`
`their efforts to develop an innovative test. If there is a race to innovate,
`
`the Commission appears to argue that Illumina can, by foreclosing
`
`competitors’ access to NGS platforms, slow the pace of that race and that
`
`this is to its benefit.
`
`We accept, arguendo, that Illumina can, by foreclosing access to its
`
`NGS platform, slow its competitors. But the Commission does not explain
`
`convincingly why this is to Illumina’s benefit or why it will slow
`
`innovation. It may save some resources, either overall or may spread
`
`them over a longer period. But there is an opportunity cost to slowing
`
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`- 13 -
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`Case: 23-60167 Document: 138 Page: 22 Date Filed: 06/12/2023
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`
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`innovation. The primary benefit of Grail’s MCED test is to identify
`
`persons who are “candidates” for cancer treatment, so they can address
`
`their likelihood of developing cancer symptoms, its severity, or the
`
`intensity of its treatment. But every day, Illumina loses potential
`
`customers, not to competitors but as
`
`individuals move
`
`from
`
`asymptomatic to symptomatic. This is the significant opportunity cost to
`
`Illumina slowing its innovation – a permanent decrease in the number of
`
`asymptomatic patients to test. Innovation will limit those loses.
`
`An improved MCED test will also expand testing opportunities for
`
`a Grail MCED test; some of those opportunities will not be available in
`
`the future if Illumina slows its innovation now, for the same reason: the
`
`progression of individuals from the asymptomatic stage to symptomatic
`
`cancer.
`
`The Commission bases its finding of harm in a market for R&D, or
`
`its finding of harm to innovation, on the assumption that Grail, and
`
`others, are racing to innovate future commercialized MCED tests. But
`
`the Commission merely assumes this is the necessary or material spur,
`
`it does not prove it. All the Commission has done is show that Grail and
`
`
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`- 14 -
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`Case: 23-60167 Document: 138 Page: 23 Date Filed: 06/12/2023
`
`
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`other competitors identify each other as competitors. What the
`
`Commission fails to show is that the presence of other competitive firms
`
`is a necessary or material spur to innovation. It is not. Post-merger,
`
`Illumina has the incentive to continue to innovate Grail’s commercialized
`
`MCED test, regardless of the competitive efforts of other firms.
`
`II. The Commission’s Evaluation of the Likelihood and
`Magnitude of Illumina’s Efficiency Claims Was Insufficient
`and Biased Against Efficiency Claims in Vertical Mergers
`This Court has not recently2 been asked to consider the efficiency
`
`claims of a party to a merger.
`
`A. Consideration of Efficiency Claims is a Required Step
`in the Evaluation of the Competitive Effects of a
`Merger
`Under the burden-shifting approach applied to evaluating the
`
`competitive effects of a merger, courts routinely consider efficiency
`
`claims. See, e.g., United States v. AT&T, 310 F. Supp. 3d, 161, 191 (D.D.C.
`
`2018), aff’d 916 F.3d 1029 (D.C. Cir. 2019) (“One way defendants [may
`
`
`2 In this Court’s most recent review of a Commission merger decision, the
`respondent “did not contend that the acquisition would lead to enhanced
`efficiencies benefitting competition.” Chicago Bridge & Iron Co. N.V. v.
`FTC, 534 F.3d 410, 422 (5th Cir. 2008).
`
`
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`- 15 -
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`
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`Case: 23-60167 Document: 138 Page: 24 Date Filed: 06/12/2023
`
`
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`rebut the Government’s prima facia case] is to offer evidence that ‘post-
`
`merger efficiencies will outweigh the merger’s anticompetitive effects.’”).
`
`The Commission evaluated the respondents’ efficiency claims as a
`
`potential “offset [to] the likely anticompetitive effects from [the merger].”
`
`Comm.Opp. at 74-75. (See Petitioners’ Brief at 58-70 (discussing
`
`efficiency claims)). However, the Commission raises the possibility that
`
`it, and this Court, can reject any efficiency claim as irrelevant to the
`
`analysis of the legality of a merger and “that efficiencies alone [cannot]
`
`immunize[] an otherwise unlawful transaction.” Comm.Opp. at 75. This
`
`claim misreads the law and is thus subject to de novo review. Chicago
`
`Bridge & Iron Co. N.V. v. FTC, 534 F.3d 410, 422 (5th Cir. 2008) (“We
`
`review de novo all legal questions pertaining to Commission orders.”).
`
`If this is indeed the FTC’s position, it reflects the very dated (and
`
`misguided) hostility to efficiencies in three early Clayton Act Section 7
`
`Supreme Court decisions: Brown Shoe v. United States, 370 U.S. 294, 344
`
`(1962), United States v. Philadelphia National Bank, 374 U.S. 321, 371
`
`(1963) (which the Commission quotes approvingly), and FTC v. Procter &
`
`Gamble Co., 386 U.S. 568, 581 (1967). The Supreme Court has since
`
`
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`- 16 -
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`
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`Case: 23-60167 Document: 138 Page: 25 Date Filed: 06/12/2023
`
`
`
`recognized efficiency claims in a series of seminal non-merger antitrust
`
`matters. Leegin Creative Leather Prods. v. PSKS, Inc., 551 U.S. 877
`
`(2007) (minimum vertical price agreements); State Oil v. Khan, 522 U.S.
`
`3 (1997) (maximum vertical price agreements); Broadcast Music, Inc., v.
`
`Columbia Broad. Sys., Inc., 441 U.S. 1 (1979) (horizontal price and non-
`
`price restraints); Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36
`
`(1977) (vertical non-price restraints); Brunswick Corp. v. Pueblo Bowl-O-
`
`Mat, Inc. 429 U.S. 477 (1977) (antitrust injury). Most recently, in Alston,
`
`the Supreme Court reiterated that, under the “burden-shifting” approach
`
`used to adjudicate “rule-of-reason” restraint of trade cases, the defendant
`
`can rebut the plaintiff’s prima facia case by showing a procompetitive
`
`rationale for a challenged restraint. NCAA v. Alston, 141 S. Ct. 2141,
`
`2160 (2021). Notably, “antitrust law does not require businesses to use
`
`anything like the least restrictive means of achieving legitimate business
`
`purposes.” Id. at 2161.
`
`Appellate courts have considered efficiency claims in mergers since
`
`at least the FTC’s challenge to University Health’s proposed acquisition
`
`of the assets of a competing hospital. FTC v. Univ. Health, Inc., 938 F.2d
`
`
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`- 17 -
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`Case: 23-60167 Document: 138 Page: 26 Date Filed: 06/12/2023
`
`
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`1206 (11th Cir. 1991). “[I]n certain circumstances, a defendant may rebut
`
`the government’s prima facie case with evidence showing that the
`
`intended merger would create significant efficiencies in the relevant
`
`market.” Id. at 1222. To that court, it was
`
`clear that whether an acquisition would yield significant
`efficiencies
`in the relevant market
`is an
`important
`consideration in predicting whether the acquisition would
`substantially
`lessen competition. . . . [E]vidence
`that a
`proposed acquisition would create significant efficiencies
`benefiting consumers is useful in evaluating the ultimate
`issue—the acquisition’s overall effect on competition.
`Id. Other appellate courts have considered efficiency claims. See, e.g.,
`
`FTC v. Tenet Health Care Corp., 186 F.3d 1045, 1054-55 (8
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