Case: 23-60167 Document: 251 Page: 1 Date Filed: 08/02/2023
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`No. 23-60167
`__________________________________________________________________
`IN THE
`United States Court of Appeals
`FOR THE FIFTH CIRCUIT
`
`ILLUMINA, INC. AND GRAIL, INC.,
`
` v.
`FEDERAL TRADE COMMISSION,
`
`Petitioners,
`
`Respondent.
`
`On Petition for Review from the Federal
`Trade Commission (Docket Number 9401)
`
`BRIEF OF 27 PROFESSORS OF ANTITRUST,
`ECONOMICS, OR BUSINESS AS AMICI
`CURIAE IN SUPPORT OF RESPONDENT
`
`Seth Greenstein
`CONSTANTINE CANNON LLP
`1001 Pennsylvania Avenue NW,
`Suite 1300N
`Washington, D.C. 20004
`(202) 204-3514
`
`Ankur Kapoor
`Ethan Litwin
`CONSTANTINE CANNON LLP
`335 Madison Avenue
`New York, N.Y. 10017
`(212) 350-2748
`
`Counsel for Amici Curiae
`
`

`

`Case: 23-60167 Document: 251 Page: 2 Date Filed: 08/02/2023
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`CERTIFICATE OF AMICI CURIAE*
`I certify that the following listed persons and entities have an interest in the
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`case’s outcome as described in Fifth Circuit Rule 28.2.1. These representations are
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`made so that the judges of this Court may evaluate possible disqualification or
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`recusal.
`
`Party
`Illumina, Incorporated
`Petitioner
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`GRAIL Incorporated, now
`known as GRAIL, L.L.C.
`Petitioner
`
`Federal Trade Commission
`Respondent
`
`27 Professors of Antitrust,
`Economics, or Business*
`Amici Curiae
`
`
`
`
`August 2, 2023
`
`*See Addendum A for list of Amici Curiae
`
`Counsel
`David R. Marriott, Sharonmoyee Goswami,
`Christine A. Varney, Jesse M. Weiss, Michael J.
`Zaken, Antony L.Ryan, Benjamin A. Atlas
`Cravath, Swaine & Moore LLP
`
`Gregory G. Garre, Michael G. Egge, Marguerite M.
`Sullivan, Anna M. Rathbun, David L. Johnson,
`Alfred C. Pfeiffer
`Latham & Watkins LLP
`
`Anisha S. Dasgupta, Joel Marcus-Kurn, Matthew
`M. Hoffman
`Federal Trade Commission
`
`Seth D. Greenstein
`Ankur Kapoor
`Ethan Litwin
`Constantine Cannon LLP
`
`
`
`
`/s/ Seth D. Greenstein
`Seth D. Greenstein
`CONSTANTINE CANNON LLP
`
`
`
`

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`Case: 23-60167 Document: 251 Page: 3 Date Filed: 08/02/2023
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`TABLE OF CONTENTS
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`TABLE OF AUTHORITIES ..................................................................................... ii
`INTEREST OF AMICI CURIAE ......................................................................... - 1 -
`INTRODUCTION ................................................................................................ - 2 -
`SUMMARY OF ARGUMENT ............................................................................. - 5 -
`ARGUMENT ........................................................................................................ - 9 -
`A. A vertical merger involving a dominant firm may pose a
`substantial threat to competition; it is not presumptively
`procompetitive. ................................................................................. - 9 -
`The FTC employed valid analytical principles in concluding
`that the merger of Illumina and Grail is reasonably likely to
`produce anticompetitive effects. .................................................... - 13 -
`The FTC’s analysis of the efficiencies issue was appropriate. ...... - 18 -
`C.
`CONCLUSION ................................................................................................... - 23 -
`
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`
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`B.
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`
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`i
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`
`TABLE OF AUTHORITIES
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`
`Cases
`Brown Shoe Co. v. United States,
`370 U.S. 294 (1962) ..................................................................................... 2, 7, 11
`Ford Motor Co. v. United States,
`405 U.S. 562 (1972) ............................................................................................. 11
`FTC v. H.J. Heinz Co.,
`246 F.3d 708 (D.C. Cir. 2001) ....................................................................... 20, 21
`FTC v. Hackensack Meridian Health, Inc.,
`30 F.4th 160 (3d Cir. 2022) ...................................................................................21
`FTC v. Penn State Hershey Med. Ctr.,
`838 F.3d 327 (3d Cir. 2016) ........................................................................... 21, 22
`FTC v. Univ. Health, Inc.,
`938 F.2d 1206 (11th Cir. 1991) .............................................................................22
`FTC v. Wilh. Wilhelmsen Holding ASA,
`341 F. Supp. 3d 27 (D.D.C. 2018) ........................................................................20
`Greater Bos. Television Corp. v. FCC,
`444 F.2d 841 (D.C. Cir. 1970) ................................................................................ 5
`Hosp. Corp. of Am. v. FTC,
`807 F.2d 1381 (7th Cir. 1986) ................................................................................. 2
`La. Pub. Serv. Comm’n v. FERC,
`522 F.3d 378 (D.C. Cir. 2008) ................................................................................ 5
`United States v. Am. Airlines Grp. Inc.,
`Civil No. 21-11558-LTS, 2023 WL 3560430 (D. Mass. May 19, 2023) ............... 3
`United States v. AT&T Inc.,
`310 F. Supp. 3d 161 (D.D.C. 2018) ...................................................................... 11
`United States v. H&R Block, Inc.,
`833 F. Supp. 2d 36 (D.D.C. 2011) ........................................................................22
`ii
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`United States v. Marine Bancorp. Inc.,
`418 U.S. 602 (1974) ............................................................................................... 2
`Statutes
`15 U.S.C. § 18 ..........................................................................................................13
`
`
`iii
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`INTEREST OF AMICI CURIAE
`The undersigned amici curiae are professors of antitrust law, economics, and
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`business who are interested in the proper interpretation and enforcement of
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`antitrust law. (A list of the signatories is attached as Addendum A.)1 We submit this
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`brief to assist the Court in analyzing the issues presented by this case: a vertical
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`merger of an upstream supplier (Illumina) and a downstream manufacturer (Grail).
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`Vertical mergers can reduce competition by foreclosing competitors from
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`necessary inputs or distribution and injuring consumers in the process. They can
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`also generate efficiencies that more than offset their anticompetitive effects and
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`thereby prevent consumer harm.
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`
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`In a decision joined by every Commissioner, the Federal Trade Commission
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`(FTC) held that Illumina’s acquisition of Grail may distort competition in the
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`research, development, and commercialization of early-cancer detection tests, a
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`revolutionary healthcare product that could save thousands of lives. The FTC
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`found that the merger will give Illumina the ability and incentive to disadvantage
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`
`1
`The parties to this appeal have consented to this amicus brief. No party’s counsel has
`authored this brief in whole or in part; no party’s counsel has contributed money intended to fund
`preparing or submitting the brief; and no person other than the amici curiae or their counsel has
`contributed money that was intended to fund preparing or submitting the brief. The signatories’
`institutional affiliations are provided for information only; the institutions have not authorized or
`endorsed this brief.
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`- 1 -
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`rivals in the race to develop superior tests, reducing consumer choice and
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`dampening innovation. While the merging parties argue that the transaction’s
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`efficiencies would enable Grail to develop a superior test more quickly, the FTC
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`found that those efficiencies had not been demonstrated and thus the merger was
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`unlikely to benefit consumers.2
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`INTRODUCTION
`Illumina makes next-generation sequencing (NGS) platforms, which analyze
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`
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`genetic material from blood samples. Grail has developed the first commercially
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`marketed multi-cancer early-detection (MCED) test, which utilizes blood samples
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`drawn from patients and needs an NGS platform to read the samples. Illumina’s
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`acquisition of Grail is therefore a vertical acquisition, combining a product (an
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`MCED test) and a critical input (an NGS platform).
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`
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`The FTC concluded that the acquisition would create a “reasonable
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`likelihood” of a substantial lessening of competition, the test of liability under
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`Section 7 of the Clayton Act. See United States v. Marine Bancorp. Inc., 418 U.S.
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`602, 622-23 (1974).3 The FTC found that Illumina would have the ability and
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`
`2
`The European Commission prohibited the acquisition on the same rationale. See Press
`Release, Eur. Comm’n, Commission Prohibits Acquisition of GRAIL by Illumina, Sept. 6, 2022
`(“The merger would have stifled innovation, and reduced choice”).
`
`3
`Other leading cases use similar language. See Brown Shoe Co. v. United States, 370 U.S.
`294, 325 (1962) (“reasonable probability”); Hosp. Corp. of Am. v. FTC, 807 F.2d 1381, 1389 (7th
`Cir. 1986) (Posner, J.) (“appreciable danger”).
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`incentive to disadvantage actual or potential rivals in the competition with Grail to
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`develop MCED tests that are accurate, affordable, approved by the Food and Drug
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`Administration (FDA), covered by third-party payers, and administrable at scale.4
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`Tests that achieved all those attributes would transform cancer detection and save
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`thousands of lives. But if competing MCED innovators are handicapped by lack of
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`access to Illumina’s platform, they will be discouraged from investing as much in
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`innovation and handicapped when they do invest. In that event, the results of this
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`rivalry may be determined by vertical foreclosure, rather than competition on
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`merits, and there could be no assurance that the market would produce the best
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`outcome. “Federal antitrust law . . . aims to preserve the free functioning of
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`markets and foster participation by a diverse array of competitors.” United States v.
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`Am. Airlines Grp. Inc., Civil No. 21-11558-LTS, 2023 WL 3560430 at *1 (D.
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`Mass. May 19, 2023). The law “is not concerned with making individual
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`competitors larger or more powerful.” Id.
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`
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`Illumina and Grail object to the FTC’s decision. They argue that the merged
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`firm would not foreclose Grail’s competitors because refusing to deal with them
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`would be unprofitable. The true motivation for the transaction, they contend, is to
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`accelerate the development and commercialization of a superior MCED test
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`
`4
`Grail’s existing test does not meet these standards. It is expensive, has not received full
`FDA approval, and is not generally covered by public or private health plans.
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`through closer collaboration between the merging parties. They also claim that the
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`combination would lower prices by eliminating double marginalization (EDM).5
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`The FTC rejected these claims, finding that the parties had failed to meet the basic
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`requirements of a valid efficiency justification. They had not shown that their
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`asserted efficiencies were quantified, verified, merger specific, and sufficiently
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`large to make the transaction an overall benefit to consumers.
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`In this brief, we do not evaluate the evidentiary support for the parties’
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`conflicting contentions. Our goal is to set forth the legal and economic principles
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`that should determine the result once the facts are found.6 We offer three main
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`conclusions. First, vertical mergers involving a dominant firm can pose a serious
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`threat to competition; they should not be viewed as presumptively procompetitive.
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`Second, the FTC employed an appropriate analytical framework in assessing the
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`transaction’s likely anticompetitive effects. Third, the FTC also applied valid and
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`well-accepted criteria in rejecting the merging parties’ efficiency claims.
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`
`5
`EDM is a well-recognized efficiency that occurs when a vertical merger leads the
`upstream firm to transfer its input to the downstream firm at cost, eliminating the markup at the
`upstream level and inducing the merged firm to lower its downstream price. As explained below,
`there are reasons why EDM may not be a significant or cognizable procompetitive justification
`in a particular case.
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`6
`We also do not evaluate the parties’ proposed fix, the “Open Offer.” The FTC rejected it
`as inadequate and we understand that other amicus briefs will address it.
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`Accordingly, if the FTC’s findings of fact are supported by the evidence,7 its ruling
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`that the acquisition violated Section 7 should be upheld.
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`SUMMARY OF ARGUMENT
`Like horizontal mergers, vertical mergers are sometimes procompetitive. But
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`
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`they can also distort competition and injure consumers, particularly when they
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`involve the supply of a critical input by a dominant firm. The leading antitrust
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`treatise sets forth 10 ways in which a vertical acquisition can reduce competition,
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`including by foreclosing rivals from critical inputs. See IV-A PHILLIP E. AREEDA &
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`HERBERT HOVENKAMP, ANTITRUST LAW ¶¶ 1004-13 (4th ed. 2016). Specifically,
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`the acquisition of a downstream firm by a dominant input supplier may give the
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`dominant firm the ability and incentive to (1) foreclose competing downstream
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`firms by refusing to supply the critical input, degrading its quality, delaying its
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`supply, or raising its price to (2) enable the acquired firm to raise price, reduce
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`research and development (R&D), or otherwise compete less intensely. Such
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`foreclosure deprives the downstream market of a level playing field and may result
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`in significant harm to competition, consumers, and innovation. See Steven C.
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`Salop, Invigorating Vertical Merger Enforcement, 127 YALE L.J. 1962 (2018). It is
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`
`7
`To be accepted by an appellate court, an agency’s findings of fact must be supported by
`substantial evidence. See La. Pub. Serv. Comm’n v. FERC, 522 F.3d 378, 395 (D.C. Cir. 2008);
`Greater Bos. Television Corp. v. FCC, 444 F.2d 841, 853 (D.C. Cir. 1970).
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`incorrect, therefore, to claim that a vertical merger is always or inherently
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`procompetitive.
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`Vertical mergers can also produce significant efficiencies. The merging firms
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`may be able, for example, to enhance coordination of production and R&D or
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`eliminate double marginalization. The overall effect of a vertical merger, therefore,
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`may be procompetitive or anticompetitive, depending on the facts of the case. This
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`Court should not approach the matter with the presumption that because this
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`merger is vertical, it is likely to be procompetitive. No case articulates such a
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`presumption and economic theory and empirical evidence do not justify it.
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`The risk to competition is especially great when the upstream market is
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`dominated by a single firm supplying a critical input and the downstream market is
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`characterized by competition among differentiated firms to develop a new product.
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`In that case, the foreclosure of downstream competitors may reduce the choices
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`available to consumers and suppress or distort innovation.
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`
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`The FTC relied on those principles in concluding that Illumina’s acquisition
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`of Grail posed a substantial threat to competition. The FTC found that (1) Illumina
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`is the dominant NGS platform and no other firm provides a service of comparable
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`quality; (2) Illumina’s control of this critical input gives it the ability to raise the
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`costs of, or otherwise disadvantage, Grail’s competitors in the relevant market: the
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`research, development, and commercialization of MCED tests;8 (3) Illumina would
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`have an incentive to do so, because the profits it would lose by discriminating
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`against Grail’s rivals would be more than made up by the profits it would make if
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`Grail won the innovation race or rivals were handicapped; and (4) as a result, the
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`merger posed a substantial threat to competition and consumers.
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`The merging parties argue that there is no risk to competition because
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`Illumina would never refuse to deal with Grail’s rivals as that would be
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`unprofitable. But that ignores the large profits Illumina would receive if Grail’s test
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`were approved by the FDA or accepted by payers substantially before rivals’ tests.
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`It also ignores Illumina’s ability to handicap rivals through measures short of
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`refusals to deal, such as delaying, degrading, or raising the price of its input.
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`Moreover, why would Illumina not favor Grail? Illumina will obtain the “vast
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`downstream profits [that] await the winner of the MCED innovation race,” FTC
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`Opinion 50, only if Grail wins the innovation race.
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`8
`The Administrative Law Judge (ALJ) found this to be the relevant market and the
`Commission upheld that determination. See FTC Opinion 24-34. The merging parties argue that
`this market should be rejected because Grail’s rivals have not yet commercialized any tests and
`thus it is not possible to evaluate whether their tests will be “reasonably interchangeable” with
`Grail’s test, the standard for market definition. See Brown Shoe, 370 U.S. at 325. But the market
`the Commission and ALJ defined is an innovation market, in which the relevant competition is
`the competition to develop a commercially viable MCED test. In this market, Grail is competing
`with the other test developers, as Grail itself recognized. See FTC Opinion 33 (citing Grail
`internal presentation identifying Exact, Thrive and three other developers as “Competitive
`Threats”). If those firms were unlikely to develop tests that would be reasonably interchangeable
`with Grail’s test, Grail would not regard them as competitive threats.
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`The merging parties maintain that even if the acquisition benefits Grail more
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`than its rivals, it will enhance competition and benefit consumers because of the
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`efficiencies it will create. The parties claim that it will speed up the development of
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`a superior MCED test by enhancing collaboration between Illumina and Grail, and
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`that it will also reduce the costs and thus the prices of Grail’s tests by eliminating
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`double marginalization.
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`The FTC rejected those efficiency claims because it found that they failed
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`the fundamental criteria of a valid procompetitive justification. According to both
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`the Horizontal Merger Guidelines and the case-law, a procompetitive justification
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`must be quantified, verified, merger-specific, and likely to benefit consumers.
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`Moreover, the procompetitive effects of a merger must outweigh its
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`anticompetitive effects, making it likely that the transaction would enhance
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`consumer welfare. Those requirements distinguish efficiency claims that are likely
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`to be real from those that are speculative, aspirational, pretextual, or puffery. For
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`example, the FTC refused to accept the parties’ principal efficiency claim—that the
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`merger would accelerate the development of a cheap and effective cancer test—
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`because it was vague and unsupported. The Commission also found that the parties
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`did not attempt to quantify the value or scale of the claimed research advances, the
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`costs necessary to achieve them, or the obstacles they faced. Because the parties
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`did not offer a realistic business plan, the Commission could not conclude that the
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`acquisition would be likely to promote innovation.
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`ARGUMENT
`A. A vertical merger involving a dominant firm may pose a substantial
`threat to competition; it is not presumptively procompetitive.
`Leading antitrust scholars recognize that vertical mergers can pose a
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`
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`substantial threat to competition. See, e.g.,IV-A AREEDA & HOVENKAMP,
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`ANTITRUST LAW, supra; Salop, Invigorating Vertical Merger Enforcement, supra;
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`Jonathan B. Baker, Exclusion as a Core Competition Concern, 78 ANTITRUST L.J.
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`527 (2013); Jonathan B. Baker, Nancy L. Rose, Steven C. Salop & Fiona Scott
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`Morton, Five Principles for Vertical Merger Enforcement Policy, 33 ANTITRUST 12
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`(Summer 2019); William P. Rogerson, Modelling and Predicting the Competitive
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`Effects of Vertical Mergers, 53 CAN. J. ECON. 407 (2020). The danger of
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`foreclosure is most acute when one of the merging parties is a dominant firm. A
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`dominant firm upstream may be able to disadvantage competitors of its
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`downstream partner by cutting off their access to a critical input, or reducing its
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`quality, delaying its supply, or increasing its price, thereby raising rivals’ costs or
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`otherwise weakening them and enabling the downstream partner to elevate its
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`prices, lower its quality, or reduce its investment in R&D. See Thomas G.
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`Krattenmaker & Steven C. Salop, Anticompetitive Exclusion: Raising Rivals’ Costs
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`to Achieve Power over Price, 96 YALE L.J. 209 (1986). Such exclusionary conduct
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`may also change the outcome of an innovation race in the downstream market,
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`causing the downstream partner to prevail even though, absent the merger, one of
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`its competitors would have developed a superior product.9
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`In short, economic theory shows that vertical mergers can reduce
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`competition, diminish consumer choice and innovation, and raise prices. Empirical
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`studies have also found evidence that vertical mergers cause harm. For example,
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`Jonathan Baker and co-authors concluded that the partial vertical merger of News
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`Corp and DIRECTV led to anticompetitive input foreclosure because News Corp
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`raised the price of Fox News to rivals of DIRECTV. See Jonathan B. Baker et al.,
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`The Year in Economics at the FCC, 2010-11: Protecting Competition Online, 39
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`REV. INDUS. ORG. 297, 306 (2011). Jean-Francois Houde found that an increase in
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`the number of vertically integrated gas stations in Quebec City resulted in higher
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`prices. See Jean-Francois Houde, Spatial Differentiation and Vertical Mergers in
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`Retail Markets for Gasoline, 102 AM. ECON. REV. 2147 (2012). Marissa Beck and
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`Fiona Scott Morton reviewed 29 recent empirical studies and found that the results
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`were “decidedly mixed.” While some vertical mergers enhanced competition, in
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`half the cases vertical integration led to anticompetitive effects. See Marissa Beck
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`& Fiona M. Scott Morton, Evaluating the Evidence on Vertical Mergers, 59 REV.
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`
`9
`As a result, an anticompetitive presumption may be warranted when the vertical
`acquisition involves a dominant upstream supplier. See Baker, Rose, Salop & Scott Morton, Five
`Principles for Vertical Merger Enforcement Policy, supra at 16-17.
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`INDUS. ORG. 273 (2021) (concluding that “the empirical evidence . . . should
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`certainly not be used as a basis for a presumption that most vertical mergers are
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`procompetitive or harmless”).
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`The case-law also recognizes that vertical mergers can stifle competition.
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`Brown Shoe declared that the “primary vice” of a vertical merger is that it may
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`foreclose competitors from a portion of the market and act as a “clog on
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`competition.” Brown Shoe, 370 U.S. at 323-24 (internal quotations omitted);
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`accord Ford Motor Co. v. United States, 405 U.S. 562 (1972). Later cases ask
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`whether the transaction is likely to increase the ability or the incentive of the
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`merged firm to foreclose rivals from key sources of supply or distribution and
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`whether this foreclosure is likely to harm competition. See United States v. AT&T
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`Inc., 310 F. Supp. 3d 161, 243-45 (D.D.C. 2018), aff’d, 916 F.3d 1029 (D.C. Cir.
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`2019). No case holds that vertical acquisitions are presumptively procompetitive.
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`Chicago School scholars once argued that vertical mergers cannot harm
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`competition because there is only a “single monopoly profit” in a chain of
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`distribution and an upstream monopolist can capture that entire profit simply by
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`raising its price to the monopoly level. It cannot increase its profits by buying a
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`downstream firm. If it does acquire a downstream firm, the motivation must be
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`increased efficiency. See ROBERT H. BORK, THE ANTITRUST PARADOX 229 (1978);
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`Richard A. Posner, The Chicago School of Antitrust Analysis, 127 U. PA. L. REV.
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`925, 936-37 (1979). Subsequent research has shown, however, that this single-
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`monopoly-profit theory is valid only in extreme circumstances. In most instances, a
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`vertical merger creates some opportunity for the upstream firm to increase its
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`profits by favoring its downstream partner or disadvantaging its downstream rivals.
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`See Jonathan B. Baker, Taking the Error Out of “Error Cost” Analysis: What’s
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`Wrong with Antitrust’ s Right, 80 ANTITRUST L.J. 1, 15-17 (2015); Einer Elhauge,
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`Tying, Bundled Discounts, and the Death of the Single Monopoly Profit Theory,
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`123 HARV. L. REV. 397, 400-01 (2009); Louis Kaplow, Extension of Monopoly
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`Power Through Leverage, 85 COL. L. REV. 515 (1985).
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`In this case, the single monopoly profit theory does not apply. The theory
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`assumes, among other things, that the downstream market—the market for MCED
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`tests—is perfectly competitive. See Michael H. Riordan & Steven C. Salop,
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`Evaluating Vertical Mergers: A Post-Chicago Approach, 63 ANTITRUST L.J. 513,
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`517 (1995). But two of the well-known conditions for perfect competition—
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`homogenous products and perfect information—are not satisfied. Grail and its
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`rivals are offering or developing differentiated products, and Illumina does not and
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`will not have perfect information about the profitability of each downstream firm.
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`As a result, it is highly unlikely that Illumina would have the power or knowledge
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`to extract all the supracompetitive profits from the developer of a superior MCED
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`test. The only way Illumina could obtain all the “vast downstream profits [that]
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`Case: 23-60167 Document: 251 Page: 18 Date Filed: 08/02/2023
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`await the winner of the MCED innovation race,” FTC Opinion 50, is by owning
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`the winner.
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`In sum, economic theory, empirical studies, and case-law make clear that
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`vertical mergers may pose a substantial threat to competition. No decision or
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`generally applicable economic theory holds that vertical mergers are presumptively
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`procompetitive. On the contrary, the Beck-Scott Morton review of the empirical
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`literature found that approximately half the mergers studied were anticompetitive.
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`B.
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`The FTC employed valid analytical principles in concluding that the
`merger of Illumina and Grail is reasonably likely to produce
`anticompetitive effects.
`The FTC began its analysis of anticompetitive effects by noting that older
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`cases like Brown Shoe use the “share of the market foreclosed” and factors like
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`entry barriers to determine whether a vertical merger may substantially lessen
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`competition. See FTC Opinion 40-41. More recent cases, in contrast, ask “whether
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`a transaction is likely to increase the ability and/or incentive of the merged firm to
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`foreclose rivals from sources of supply or from distribution outlets.” Id. at 41.10
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`The Commission concluded that the merger of Illumina and Grail would have
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`anticompetitive effects under either framework. We focus on the ability-and-
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`10
`The FTC properly ruled that “While Complaint Counsel must demonstrate that both
`ability and incentive exist, it need not prove that the merger created both.” Id. at 49. This is so
`because an acquiring firm may have the ability to foreclose downstream competitors prior to the
`merger. If the merger increases its incentive to do so, “the effect of such acquisition may be
`substantially to lessen competition.” 15 U.S.C. § 18.
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`Case: 23-60167 Document: 251 Page: 19 Date Filed: 08/02/2023
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`incentive framework because it is grounded in economics, reflects current case-
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`law, and was endorsed by the merging parties.11
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`Illumina’s ability to foreclose or otherwise disadvantage Grail’s rivals is
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`central to the anticompetitive theory of this case. If Illumina cannot weaken or
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`eliminate these rivals, it cannot enable Grail to charge a supracompetitive price or
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`gain an artificial boost in the race to develop a better test. The FTC found that
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`Illumina had the ability to raise the costs of Grail’s rivals because Illumina was the
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`dominant provider of a critical input. The Commission stated: “Illumina is
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`currently the dominant provider of NGS, a necessary input for MCED test
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`development, and Illumina’s test developer customers have no viable alternative to
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`Illumina’s NGS in the reasonably near future.” Id. at 47. The Commission adopted
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`the ALJ’s findings that “substitute platforms are inadequate in terms of throughput,
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`accuracy, cost, level of development, risks associated with adoption, or a
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`combination of those factors.” Id. at 7-8. Indeed, Grail itself characterized Illumina
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`as the “gold standard.” Id. at 6.
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`The FTC found that Illumina could use its control of this critical input to
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`disadvantage Grail’s rivals in many ways, including “increasing prices,
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`withholding or degrading access, reducing service or support, or otherwise
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`11
`The merging parties stated that “it was Complaint Counsel’s burden to demonstrate that
`Illumina has the ability and incentive to foreclose during the relevant timeframe.” FTC Opinion
`41 n.26.
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`Case: 23-60167 Document: 251 Page: 20 Date Filed: 08/02/2023
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`increasing the costs or reducing the efficiency or efficacy of Illumina’s NGS
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`platforms for MCED rivals.” Id. at 40. In short, Illumina could hobble Grail’s
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`rivals without refusing to deal with them altogether.
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`The FTC also concluded that the merged firm had the incentive to
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`disadvantage Grail’s competitors. It found that the potential profits available to the
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`winner of the innovation race are “enormous.” Id. at 49 & 50. Because the merged
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`firm would obtain these profits if Grail wins the innovation race but would not
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`obtain them if a competitor wins, its incentive to tilt the playing field in favor of
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`Grail is large. Moreover, the incentive is robust: Illumina can favor Grail not only
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`by discriminating against its rivals—charging them more, reducing the quality of
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`the service it provides them, failing to share technological advances with them, or
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`refusing to deal with them—but also by giving Grail preferential access to
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`discounts, support, and technical information.12
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`Historical evidence corroborates the FTC’s conclusion. Illumina initially
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`owned Grail and, when it did, it favored Grail—and disfavored Grail’s rivals—by
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`giving Grail “special pricing and other benefits,” including “deep discounts.”
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`When Illumina divested its majority interest, those special benefits “went away.”
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`Id. at 52 (quoting deSouza Tr. 2207). An Illumina Q&A document explained that
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`12
`Because some of these methods are relatively inexpensive and difficult to detect, they
`increase Illumina’s incentive to foreclose Grail’s rivals. They also make it more likely that a
`behavioral remedy—the merging parties’ proffered solution—would be inadequate.
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`Case: 23-60167 Document: 251 Page: 21 Date Filed: 08/02/2023
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`this change would “level[] the playing field” and “accelerate the liquid biopsy
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`market for all.” Id.13
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`Illumina’s incentive to favor Grail over its competitors increased when it
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`reacquired ownership of Grail. Complaint counsel’s economic expert, Dr. Fiona
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`Scott Morton, explained why:
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`Illumina now stands to profit substantially more from the sale of a
`GRAIL MCED test than it does from the sale of a rival MCED test,
`because on the GRAIL MCED test it will earn a margin from NGS
`sales plus GRAIL’s margin from the test itself, while on the rival’s test
`it will earn just the margin on NGS sales.
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`Id. at 49-50.14 The ALJ found that this incentive was muted because most of
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`Grail’s rivals had not yet produced tests that were substitutes for Grail’s. The
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`Commission concluded,