United States Court of Appeals 

for the Fifth Circuit ____________ 

No. 23-60167 

____________ 

Illumina, Incorporated; GRAIL, Incorporated, now known 

as GRAIL, L.L.C., 

Petitioners, 

versus

Federal Trade Commission, 

Respondent. 

______________________________ 

Appeal from the Federal Trade Commission 

Agency No. 9401 

______________________________ 

Before Clement, Graves, and Higginson, Circuit Judges.

Edith Brown Clement, Circuit Judge: 

The Federal Trade Commission determined that Illumina, Inc.’s 

acquisition of Grail, Inc. violated Section 7 of the Clayton Act, and therefore 

ordered that the merger be unwound. Because the Commission applied an 

erroneous legal standard at the rebuttal stage of its analysis, we VACATE

the Commission’s order and REMAND for further proceedings. 

United States Court of Appeals 

Fifth Circuit 

FILED 

December 15, 2023 

Lyle W. Cayce 

Clerk 

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I. 

A. 

Founded in 1998, Illumina is a publicly traded, for-profit corporation 

that specializes in the manufacture and sale of next-generation sequencing 

(“NGS”) platforms. NGS is a method of DNA sequencing that is used in a 

variety of medical applications. In September 2015, Illumina founded a 

wholly-owned subsidiary, Grail, which was so-named because its goal was to 

reach the “Holy Grail” of cancer research—the creation of a multi-cancer 

early detection (“MCED”) test that could identify the presence of multiple 

types of cancer from a single blood sample.

Grail was incorporated as a separate entity in January 2016. Illumina 

maintained a controlling stake in the company until February 2017 when, to 

raise the capital needed to move Grail’s MCED test from concept to clinical 

trials, Illumina decided to bring in outside investors. This spin-off reduced 

Illumina’s equity stake in Grail to 12%. By September 2020, Grail had raised 

$1.9 billion through a combination of venture capital and strategic partners. 

Then, on September 20, 2020, Illumina entered into an agreement to reacquire Grail for $8 billion, with the goal of bringing Grail’s now-developed 

MCED test to market. 

The MCED-test industry had changed dramatically between 

February 2017—when Illumina spun Grail off—and September 2020—when 

Illumina agreed to re-acquire Grail. Grail’s MCED test—which it named 

Galleri—had acquired a breakthrough device designation from the U.S. Food 

and Drug Administration (“FDA”), and Grail had published promising 

results from a clinical study concerning the initial version of Galleri and was 

undergoing additional clinical studies to validate its updated version. 

Meanwhile, Thrive Earlier Detection Corporation had announced that the 

initial version of its own MCED test—CancerSEEK—had also been 

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clinically validated. And other MCED tests—including Singlera Genomics, 

Inc.’s PanSeer—were in development. All of the MCED tests in 

development—including Galleri, CancerSEEK, and PanSeer—relied on 

Illumina’s NGS platforms for sequencing, and there were no available 

alternatives. 

Given their reliance on Illumina’s NGS platforms, Illumina’s 

customers—both within and without the MCED-test industry—expressed 

concern about whether they would be able to continue to purchase Illumina’s 

NGS products post-merger on the same terms and conditions as pre-merger. 

So, Illumina developed a standardized supply contract (the “Open Offer”) 

that it made available to all for-profit U.S. oncology customers on March 30, 

2021. The Open Offer is irrevocable, may be accepted by a customer at any 

time until August 18, 2027, became effective as of the merger’s closing, and 

will remain effective until August 18, 2033. Among other terms, the Open 

Offer requires Illumina to provide its NGS platforms at the same price and 

with the same access to services and products that is provided to Grail.

Grail first offered Galleri for commercial sale in April 2021 as a 

laboratory-developed test.1

 While Galleri is the only NGS-based MCED test 

currently available on the market, others expect to go to market soon and to 

directly compete with Galleri. Illumina’s NGS platforms are still the only 

means of sequencing MCED tests and will remain so for the foreseeable 

future. 

_____________________ 

1

 The FDA does not review or validate safety or efficacy data of tests sold as 

laboratory-developed tests. Rather, independent labs self-certify the quality of their own 

product under the regulatory framework set forth under the Clinical Laboratory 

Improvement Amendments. For this reason, laboratory-developed tests have lower 

adoption rates than FDA-approved tests. 

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B. 

On March 30, 2021—the same day Illumina released its Open Offer—

the FTC’s Complaint Counsel issued a complaint alleging that the IlluminaGrail merger agreement, if consummated, would violate Section 7 of the 

Clayton Act.2

 The merger was, in fact, consummated on August 18, 2021, 

but, due to ongoing regulatory review by the European Commission, Illumina 

held—and continues to hold—Grail as a separate company. 

The FTC’s Chief Administrative Law Judge (“ALJ”) convened an 

evidentiary hearing on August 24, 2021. In the coming months, the parties 

developed an extensive evidentiary record consisting of over 4,500 exhibits 

and the live or deposition testimony of fifty-six fact witnesses and ten experts. 

Based on this record, the ALJ issued his initial decision on September 1, 

2022. The ALJ found that Complaint Counsel failed to prove that the merger 

was likely to cause a substantial lessening of competition in the market for the 

research, development, and commercialization of MCED tests. Specifically, 

the ALJ concluded that Complaint Counsel had not shown a likelihood that 

Illumina would foreclose against Grail’s rivals because Grail has no current 

competitors in the market to be foreclosed, the MCED tests in development 

would not be a good substitute for Grail’s test, and any foreclosing activities 

would cause harm to Illumina’s NGS-sales business. In any event, the ALJ 

determined, the Open Offer “effectively constrains Illumina from harming 

Grail’s alleged rivals and rebuts the inference that future harm to Grail’s 

alleged rivals, and thus future harm to competition, is likely.” 

_____________________ 

2

 For clarity, we use “FTC” when discussing the Federal Trade Commission 

generally, “Complaint Counsel” when describing the FTC’s actions as a party to these 

adversary proceedings, and “Commission” when referring to the FTC’s actions as an 

adjudicatory body. 

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Complaint Counsel appealed the ALJ’s decision to the Commission, 

and, after oral argument, the Commission reversed. Upon its de novo review, 

the Commission concluded that the merger was likely to substantially lessen 

competition in the market for the research, development, and 

commercialization of MCED tests. The Commission found that the ALJ had 

factually erred in discussing the capabilities of Grail and other MCED tests 

in development, improperly focused on foreclosure harm to MCED tests on 

the market today as opposed to tests in development, and failed to recognize 

that any losses to Illumina’s NGS sales would be more than offset by 

Illumina’s expected gains in clinical testing. The Commission also held that 

the Open Offer was a remedy that should not be factored into the liability 

analysis. But the Commission evaluated the Open Offer as rebuttal evidence 

anyway, finding that the Open Offer failed to rebut Complaint Counsel’s 

prima facie case because it would not “eliminate the effects” of the merger. 

Finally, the Commission rejected Illumina’s constitutional defenses. The 

Commission therefore ordered Illumina to divest Grail. Illumina now 

appeals. 

II. 

We review the Commission’s decision, not that of the ALJ. Impax 

Laboratories, Inc. v. FTC, 994 F.3d 484, 491 (5th Cir. 2021). All legal 

questions pertaining to the Commission’s order are reviewed de novo while 

the Commission’s factual findings are reviewed for “substantial evidence.” 

Chicago Bridge & Iron Co. N.V. v. FTC, 534 F.3d 410, 422 (5th Cir. 2008). 

Under this standard, we are bound by the Commission’s factual 

determinations so long as they are supported by “such relevant evidence as 

a reasonable mind might accept as adequate.” FTC v. Ind. Fed’n of Dentists, 

476 U.S. 447, 454 (1986) (citation omitted). This is so “even if suggested 

alternative conclusions may be equally or even more reasonable and 

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persuasive.” N. Tex. Specialty Physicians v. FTC, 528 F.3d 346, 354 (5th Cir. 

2008) (internal quotation marks and citation omitted). 

III. 

Because, as explained below, resolution of Illumina’s statutory claims 

does not “obviate the need to consider” the constitutional issues raised, 

United States v. Wells Fargo Bank, 485 U.S. 351, 354 (1988), we begin with 

Illumina’s four constitutional challenges. Each is foreclosed by Supreme 

Court authority. 

A. 

First, Illumina contends that the Commission proceedings were the 

result of an unconstitutional delegation of legislative power in violation of 

Article I. Specifically, Illumina claims that Congress delegated to the FTC 

the power to decide whether to bring antitrust enforcement actions in an 

administrative proceeding, pursuant to Section 5(b) of the FTC Act, 15 

U.S.C. § 45(b), or to bring this same enforcement action in an Article III 

court pursuant to Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), without 

providing “any guidance for purposes of deciding between administrative 

proceedings and federal court.” 

But as the Supreme Court recently clarified, federal-court actions 

under Section 13(b) are not the same as administrative proceedings under 

Section 5(b). Rather, when the FTC goes to federal court under Section 

13(b), it is limited to pursuing injunctive relief; to obtain other forms of relief, 

such as monetary damages, the FTC must resort to administrative 

proceedings under Section 5(b). AMG Cap. Mgmt., LLC v. FTC, 141 S. Ct. 

1341, 1348–49 (2021). 

Moreover, to the extent that Illumina argues that Congress’s directive 

for the FTC to commence an enforcement action when such a proceeding 

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would be “in the interest of the public” does not provide an “intelligible 

principle,” we disagree. To the contrary, the Supreme Court has repeatedly 

“found an ‘intelligible principle’ in various statutes authorizing regulation in 

the ‘public interest.’” Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 474 

(2001) (collecting cases). 

B. 

Second, Illumina claims that the FTC unconstitutionally exercised 

executive powers while insulated from presidential removal in violation of 

Article II. But Humphrey’s Executor v. United States held that the FTC’s 

enabling act did not run afoul of Article II because, essentially, the FTC was 

vested with quasi-legislative/quasi-judicial authority rather than purely 

executive authority. 295 U.S. 602, 626–32 (1935). While the Supreme Court 

has cabined the reach of Humphrey’s Executor in recent years, it has expressly 

declined to overrule it. See Seila Law LLC v. CFPB, 140 S. Ct. 2183, 2206 

(2020); accord Collins v. Yellin, 141 S. Ct. 1761, 1783 (2021). Thus, although 

the FTC’s powers may have changed since Humphrey’s Executor was 

decided, the question of whether the FTC’s authority has changed so 

fundamentally as to render Humphrey’s Executor no longer binding is for the 

Supreme Court, not us, to answer. Lefebure v. D’Aquilla, 15 F.4th 650, 660 

(5th Cir. 2021) (“[T]he only court that can overturn a Supreme Court 

precedent is the Supreme Court itself.”). 

C. 

Third, Illumina argues that the FTC violated Illumina’s due process 

rights by serving as both prosecutor and judge. But the Supreme Court has 

held that administrative agencies can, and often do, investigate, prosecute, 

and adjudicate rights without violating due process. Withrow v. Larkin, 421 

U.S. 35, 47, 56 (1975). Of course, if there is evidence that a decisionmaker has 

“actual bias” against a party, that raises due process concerns. Id. at 47. But 

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courts cannot “presume bias” merely from the institutional structure of an 

agency. United States v. Benitez-Villafuerte, 186 F.3d 651, 660 (5th Cir. 1999). 

Moreover, this court has already rejected the argument that the FTC’s 

structure, which combines prosecutorial and adjudicative functions, deprives 

parties of due process. Gibson v. FTC, 682 F.2d 554, 559–60 (5th Cir. 1982). 

Illumina points to no evidence of actual bias and instead takes issue with the 

FTC’s structural design. Whatever merit this argument may have, it is barred 

by precedent. 

D. 

Fourth, Illumina claims an equal-protection violation because there is 

no rational basis for allocating certain antitrust enforcement actions to the 

FTC and others to the Department of Justice. But rational-basis review is a 

low bar that is satisfied so long as “there is any reasonably conceivable state 

of facts that could provide a rational basis for the classification.” FCC v. 

Beach Commc’ns, Inc., 508 U.S. 307, 313 (1993). Here, the FTC and the DOJ 

have an “interagency clearance process” which allocates antitrust 

investigations to one agency or the other based primarily on which agency has 

“expertise in [the] particular industry or market” of the transaction under 

review. U.S. Gov’t Accountability Off., GAO-23-105790, DOJ 

and FTC Jurisdictions Overlap, but Conflicts are 

Infrequent (2023). This is undoubtedly a rational basis for giving one 

agency the lead over the other. 

IV. 

We turn now to Illumina’s Clayton Act challenge. Section 7 of the 

Clayton Act prohibits mergers and acquisitions “where in any line of 

commerce or in any activity affecting commerce in any section of the country, 

the effect of such acquisition may be substantially to lessen competition.” 15 

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U.S.C. § 18.3 To evaluate Section 7 claims, courts apply a burden-shifting 

framework. See, e.g., Chicago Bridge, 534 F.3d at 423; United States v. AT&T 

Inc., 916 F.3d 1029, 1032 (D.C. Cir. 2019) (applying burden-shifting 

framework to Section 7 claim concerning vertical merger).4

 Complaint 

Counsel bears the initial burden to “establish a prima facie case that the 

merger is likely to substantially lessen competition in the relevant market.” 

AT&T, 916 F.3d at 1032. If a prima facie case is made, “the burden shifts to 

the defendant to present evidence that the prima facie case inaccurately 

predicts the relevant transaction’s probable effect on future competition or 

to sufficiently discredit the evidence underlying the prima facie case.” Id.

(internal quotation marks and citations omitted). If such a rebuttal is 

provided, “the burden of producing additional evidence of anticompetitive 

effects shifts to the government, and merges with the ultimate burden of 

persuasion, which remains with the government at all times.” Id. (citation 

omitted). This framework is applied flexibly—“in practice, evidence is often 

considered all at once and the burdens are often analyzed together.” Chicago 

Bridge, 534 F.3d at 424. 

A. 

We start by reviewing Complaint Counsel’s prima facie case. The 

Commission concluded that Complaint Counsel had carried its burden of (1) 

identifying the relevant product and geographic market as the market for the 

_____________________ 

3

 The statute also prohibits mergers that would “tend to create a monopoly,” 15 

U.S.C. § 18, but that provision is not at issue here. 

4

 We note, as did the D.C. Circuit, that “[t]here is a dearth of modern judicial 

precedent on vertical mergers and a multiplicity of contemporary viewpoints about how 

they might optimally be adjudicated and enforced.” AT&T, 916 F.3d at 1037. Indeed, until 

AT&T in 2018, the government had not litigated a vertical merger case since the 1980s. 

Jonathan M. Jacobson, Vertical Mergers: Is it Time to Move the Ball?, 33 ANTITRUST 6, 6 

(2019). 

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research, development, and commercialization of MCED tests in the United 

States, and (2) showing that the Illumina-Grail merger was likely to 

substantially lessen competition in this market. We find that these 

conclusions are supported by substantial evidence. 

1. 

The first step of the prima facie case requires defining the relevant 

market—that is, the “line of commerce” and the “section of the country” 

where the relevant competition occurs. 15 U.S.C. § 18; see also United States 

v. Marine Bancorporation, Inc., 418 U.S. 602, 618 (1974) (“Determination of 

the relevant product and geographic markets is a necessary predicate to 

deciding whether a merger contravenes the Clayton Act.” (internal quotation 

marks and citation omitted)). The parties agree with the Commission’s 

finding that the relevant geographic market is the United States but disagree 

as to its determination that the relevant product market is “the research, 

development, and commercialization of MCED tests.”5

In antitrust law, the relevant product market is “the area of effective 

competition,” which is typically the “arena within which significant 

substitution in consumption or production occurs.” Ohio v. Am. Express Co., 

138 S. Ct. 2274, 2285 (2018) (internal quotation marks and citation omitted). 

However, the relevant product market must “correspond to the commercial 

realities of the industry.” Brown Shoe Co. v. United States, 370 U.S. 294, 336 

(1962) (internal quotation marks and citation omitted). So, “courts should 

combine different products or services into a single market” when necessary 

to reflect these realities. Ohio, 138 S. Ct. at 2285 (alteration adopted) (internal 

quotation marks and citation omitted). 

_____________________ 

5

 The ALJ defined the relevant product market the same way. 

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To determine the boundaries of the relevant product market, the 

Commission relied on what is known as the “Brown Shoe” methodology, 

which looks to certain “practical indicia” of market demarcation, such as 

“industry or public recognition of the [market] as a separate economic entity, 

the product’s peculiar characteristics and uses, unique production facilities, 

distinct customers, distinct prices, sensitivity to price changes, and 

specialized vendors.” Brown Shoe, 370 U.S. at 325. 

First, the Commission found that MCED tests have “peculiar 

characteristics and uses” as compared to other current standard-of-care 

cancer-screening tests. As the Commission explained, cancer is traditionally 

detected through more invasive procedures, like a tissue biopsy, 

colonoscopy, or mammography, which often screen for only one type of 

cancer and only at a later stage of cancer development.6

Second, the Commission found that MCED tests are designed for 

distinct customers—asymptomatic patients as opposed to those with 

symptoms or a history of cancer. And, as the Commission noted, MCED test 

developers expect to market their tests to primary care physicians and, in 

Illumina’s case, directly to patients, as opposed to marketing plans for other 

oncology tests, which focus on sales to oncologists and other cancer 

specialists. 

Third, the Commission found that MCED tests, which will be 

targeted toward a more general population than traditional cancer-screening 

tests, will likely have their own distinct pricing strategy. Specifically, MCED 

tests will need to have particularly low out-of-pocket costs to patients in order 

to achieve wide acceptance. Other MCED-test developers testified that they 

_____________________ 

6

 As the ALJ noted, “[t]he conclusion that MCED tests are a distinct product from 

other oncology tests borders on the obvious.” 

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anticipated competing with Grail on price, and evidence in the record showed 

that Grail understood that lower-priced MCED tests would pose a 

competitive threat. Finally, the Commission found that “MCED developers, 

including Grail, see themselves as competing in a distinct market and view 

each other as key competitors.” 

Critically, because the Commission viewed the relevant product 

market as one for the research, development, and commercialization of 

MCED tests—not the existing commercial market for MCED tests—it based 

its market definition on what MCED-test developers reasonably sought to 

achieve, not what they currently had to offer. Each of Illumina’s proposed 

bases for why the Commission’s market definition fails springs from the 

presumption that the Commission should have defined the market based on 

the products that currently exist, not those that are anticipated or expected. 

We disagree.7

 

First, Illumina argues that there is no evidence of reasonable 

interchangeability of use or cross-elasticity of demand between Galleri and 

other MCED tests in development because the other tests either will not 

match Galleri’s “performance characteristics” or “are years from coming to 

market.” But as the Commission noted, record evidence suggested 

otherwise—CancerSEEK has been shown to detect eight types of cancer in 

an asymptomatic screening population while Galleri has only been shown to 

detect seven. And even if Illumina was correct in its claim that the other 

_____________________ 

7

 In any event, the leading antitrust commentators have noted that “the difference 

between actual and potential competition” for purposes of antitrust enforcement is often 

“exaggerate[d]”: “[P]otential competition is competition ‘for’ the market, while ‘actual’ 

competition is said to be competition ‘in’ the market. But insofar as antitrust policy is 

concerned, both kinds of competition can be equally ‘actual.’” 4 Phillip E. Areeda & 

Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust 

Principles and Their Application ¶ 907 (4th ed. 2016). 

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MCED tests in development would only be able to detect a subset of the fifty 

cancer types that Galleri can detect, two products need not be identical to be 

in the same market; rather, the question is merely whether they are “similar 

in character or use.” United States v. Anthem, Inc., 236 F. Supp. 3d 171, 194 

(D.D.C.) (quoting FTC v. Staples, Inc., 970 F. Supp. 1066, 1074 (D.D.C. 

1997)), aff’d, 855 F.3d 345 (D.C. Cir. 2017). And the Commission correctly 

noted that these other tests could still take sales from Galleri (i.e., be 

substitutes, albeit not perfect substitutes) if they were priced lower.

Nor was the Commission required to mathematically demonstrate 

cross-elasticity of demand. Indeed, requiring such hard metrics to prove the 

bounds of a market where only one product has been commercialized but 

there is indisputably ongoing competition to bring additional products to 

market would, in effect, prevent research-and-development markets from 

ever being recognized for antitrust purposes. This, in turn, would directly 

contravene the purpose of Section 7—“to arrest anticompetitive tendencies 

in their incipiency.” United States v. Phila. Nat’l Bank, 374 U.S. 321, 362 

(1963) (internal quotation marks and citation omitted).8

To be sure, simply labeling a market as one for “research and 

development” does not relieve Complaint Counsel of its burden to delineate 

the bounds of a relevant product market. In some circumstances, there may 

be no firms which can fairly be said to be “competing” in a space. And the 

mere fact that some company, someday may innovate a competing product 

in a given market would be too speculative to support a Section 7 claim, lest 

_____________________ 

8

 For similar reasons, the Commission was not required to use the hypothetical 

monopolist test to define the relevant product market. In a research-and-development 

market where most products have yet to reach the consumer marketplace, there are no 

prices from which to build a data set, and thus no way to run a hypothetical monopolist test 

analysis. 

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every acquisition be presumptively unlawful. Cf. FTC v. Elders Grain, Inc., 

868 F.2d 901, 906 (7th Cir. 1989) (“Section 7 forbids mergers and other 

acquisitions the effect of which ‘may’ be to lessen competition substantially. 

. . . Of course the word ‘may’ should not be taken literally, for if it were, every 

acquisition would be unlawful.”). But that is not the case here. While Grail 

may have the most advanced MCED test, competing tests—particularly 

CancerSEEK—have been clinically validated, and other developers have 

concrete plans to begin the trials necessary for FDA approval. Indeed, Grail’s 

own internal documents show that the company viewed itself as being in 

active competition with these other MCED-test developers.

For similar reasons, Illumina’s other arguments—that the 

Commission misapplied the Brown Shoe factors and “baseless[ly]” defined 

the market to include products in development—also fail. Specifically, 

Illumina contends that the Commission assessed the Brown Shoe “practical 

indicia” too broadly, examining whether MCED tests were different from 

other oncology tests rather than whether Galleri was different from other 

MCED tests in development. But Illumina’s proposed approach assesses the 

indicia far too narrowly. Indeed, under the narrower application urged by 

Illumina, the relevant market would consist of only one product—Galleri. 

Antitrust law does not countenance such a cramped view of competition, 

particularly in a research-and-development market.9

_____________________ 

9

 Because the relevant “line of commerce” is the research and development of 

MCED tests, Illumina’s reliance on Mercantile Texas Corp. v. Board of Governors of Federal 

Reserve System, 638 F.2d 1255, 1272 (5th Cir. Unit A 1981) for the proposition that market 

entry needs to occur within two to three years is misplaced. Although other MCED test 

developers have not yet entered the consumer market, they have entered the research-anddevelopment market. 

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2. 

With the relevant market established, we next turn to whether 

Complaint Counsel carried its initial burden of showing that “the proposed 

merger is likely to substantially lessen competition.” AT&T, 916 F.3d at 1032 

(emphasis omitted). As the Commission recognized, courts have used “two 

different but overlapping standards for evaluating the likely effect of a vertical 

transaction”: (1) the Brown Shoe standard, which requires courts to look 

(again) at the factors first enunciated in Brown Shoe and carried on through 

its progeny, including Fruehauf Corp. v. FTC, 603 F.2d 345, 353 (2d Cir. 

1979); and (2) the “ability-and-incentive” standard, which asks whether the 

merged firm will have both the ability and the incentive to foreclose its rivals, 

either from sources of supply or from distribution outlets. Commissioner 

Wilson, concurring in the Commission’s decision, argued that there is no 

Brown Shoe standard—only the “ability-and-incentive” test—for vertical 

mergers in modern antitrust analysis. But we need not resolve this issue 

because we find that, under either standard, Complaint Counsel established 

a prima facie case supported by substantial evidence. 

a. 

We begin by addressing the test upon which all Commissioners 

agreed—the ability-and-incentive test. Under this framework, courts 

consider whether the merged firm will have the ability and incentive to 

foreclose rivals from sources of supply or distribution to determine whether 

the merger is likely to substantially lessen competition in the relevant market. 

Illumina concedes that it would have the ability to foreclose Grail’s 

rivals post-merger. But, in its reply brief, Illumina claims that merely having 

the ability to foreclose is not enough; rather, the merger must have “increased 

Illumina’s ability to foreclose.” But we do not consider arguments raised for 

the first time on reply. MDK Sociedad De Responsabilidad Limitada v. Proplant 

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Inc., 25 F.4th 360, 367 (5th Cir. 2022). And, in any event, we disagree with 

Illumina’s assertion. As the Commission astutely observed, Illumina was 

already established as the monopoly supplier of a key input—NGS 

platforms—to MCED-test developers pre-merger. So, it would have been 

impossible for Complaint Counsel to show that the merger would increase

Illumina’s ability to foreclose. Thus, as the Commission explained, requiring 

such a showing would effectively “per se exempt from the Clayton Act’s 

purview any transaction that involves the acquisition of a monopoly provider 

of inputs to adjacent markets.” We decline to adopt a rule that would have 

such perverse results.10

That leaves incentive to foreclose as the determining factor in 

evaluating the Illumina-Grail merger under the ability-and-incentive test. As 

the Commission explained, the degree to which Illumina has an incentive to 

foreclose Grail’s rivals depends upon the balance of two competing interests: 

Illumina’s interest in maximizing its profits in the downstream market for 

MCED tests vis-à-vis its ownership interest in Grail versus Illumina’s 

interest in maximizing its profits in the upstream market for NGS platforms 

vis-à-vis its sales to all MCED-test developers. Foreclosing Grail’s rivals 

would increase the former (by diverting MCED-test sales from competitors 

to Grail) but decrease the latter (by reducing the total number of MCED tests 

in the marketplace). So, the Commission reasoned, the greater Illumina’s 

ownership stake in Grail, the more its interest in maximizing downstream 

_____________________ 

10 Contrary to Illumina’s assertion, we do not read the Northern District of 

California’s Microsoft decision as reaching a different conclusion. Indeed, that court’s 

ultimate formulation of the ability-and-incentive test stated that Complaint Counsel was 

required to show that “the combined firm (1) has the ability to” and “(2) has the incentive 

to” foreclose. FTC v. Microsoft Corp., No. 23-cv-02880, 2023 WL 4443412, at *13 (N.D. 

Cal. July 10, 2023) (emphases added). The decision does not require a showing that the 

merger “provides” the combined firm with both, as Illumina wrongly claims.

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profits will outweigh its interest in preserving upstream profits, and thus the 

more incentive it will have to foreclose. And since the merger would increase 

Illumina’s ownership stake in Grail from 12% to 100%, Illumina would “now 

earn much more from the sale of a [Grail] test than from the sale of a rival’s 

test” and would therefore “have a significantly greater incentive to foreclose 

[Grail’s] rivals rather than to keep them on a level playing field.” 

Illumina challenges this conclusion on two bases. First, Illumina 

argues that, even if the merger would result in Illumina earning larger profits 

from the sale of a Grail test than the sale of a rival MCED test, that profit 

differential means nothing without proof of diversion, i.e., Grail’s capture of 

sales lost by rival MCED-test developers. Illumina is correct that diversion is 

necessary for a vertical merger to give rise to foreclosure incentives. If 

Illumina forecloses Grail’s rivals, preventing them from entering the MCEDtest market or lowering their sales, Illumina’s NGS-sales revenue generated 

from those rivals will suffer. Therefore, a foreclosure strategy is only 

economically rational if Grail can pick up enough of its competitors’ lost 

MCED-test sales to offset the losses to Illumina’s NGS-sales revenue. But, 

Illumina argues, “[b]ecause Galleri is the only test on the market today, there 

are no sales to divert,” so foreclosing Grail’s rivals would only harm 

Illumina’s NGS revenue without any concomitant benefit to Grail’s MCEDtest-sales revenue.

This contention suffers from the same fatal flaw as Illumina’s 

arguments concerning the Commission’s market definition—it insists that 

the Commission must consider only the MCED tests on the market right now, 

not those likely to be on the market in the future. But the relevant market is 

not “MCED tests commercialized today,” it is the “research, development, 

and commercialization of MCED tests.” And as explained earlier, there is 

substantial evidence in the record showing that other MCED-test developers 

are, right now, working on creating tests that will rival Grail’s capabilities and 

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that are expected to make it to the market in the near future. And when they 

do, they would divert sales from Grail—or vice versa, should a foreclosure 

strategy be pursued. 

Illumina’s second argument—that harm to Illumina’s NGS business 

from foreclosure of Grail’s rivals would outweigh any benefit to Grail’s 

MCED-testing business—is more compelling. Pre-merger, the vast majority 

of Illumina’s revenue—nearly 90% in 2020—was earned through its core 

business of selling NGS products. And Illumina is right that pursuing a 

foreclosure strategy threatens material harm to this business in two ways: 

first, by loss of NGS sales to the foreclosed MCED-test developers, and 

second, by loss of NGS business in areas outside of cancer detection as a 

result of reputational damage. But, as the Commission identified, there are 

two reasons why the risk of such harm is not as great as Illumina claims. First, 

there are myriad ways in which Illumina could engage in foreclosing behavior 

without triggering suspicion in other customers, such as by making late 

deliveries or subtly reducing the level of support services. And second, and 

more importantly, Illumina’s monopoly power in the NGS-platform market 

means that, even if other customers did learn about Illumina’s foreclosing 

behavior and therefore wanted to take their business elsewhere, they would 

have nowhere else to turn. 

In any event, there is a more fundamental reason why any harm to 

Illumina’s NGS business may not disincentivize Illumina from pursuing a 

foreclosure strategy against Grail’s rivals—the Illumina-Grail merger was 

the cornerstone of a foundational change in Illumina’s business model 

through which Illumina planned to “transform [itself] into a clinical testing 

and data driven healthcare company” as opposed to its current iteration as a 

“life sciences tools & diagnostics company focused on genomics.” In other 

words, Illumina was willing to suffer losses to its NGS-platform sales in order 

to accelerate the growth of its MCED-test sales because it now viewed the 

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latter, not the former, as its primary (and far more profitable) business. 

Illumina’s own internal projections bear this out, predicting that, although 

Illumina would lose money in the short term as a result of the merger, by 2035, 

its “net margin profit pool” for clinical testing services would be nearly eight 

times the projected profit pool for its NGS-related sales.

In light of the foregoing, the Commission had substantial evidence to 

support its conclusion that Complaint Counsel made a prima facie showing 

that, post-merger, Illumina had a significantly increased incentive to crowd 

out Grail’s competitors from the market. MCED testing is a nascent field in 

which, although only one firm—Grail—has begun to commercialize its 

product, numerous firms are researching and developing their own products 

with the end goal of commercialization. And all of the players expect the field 

to one day generate tens of billions of dollars in yearly revenue. To create and 

eventually sell this product, each developer will need access to one critical 

input—NGS platforms. Now, the sole supplier of that input—Illumina—has 

purchased the first mover in this nascent industry. Given Illumina’s 

monopoly power and shifting business priorities, it was reasonable for the 

Commission to conclude that Illumina would likely foreclose against Grail’s 

competitors—even at the expense of some short-term profits—to pursue its 

long-term goal of establishing itself (via Grail) as the market leader in clinical 

testing.11

_____________________ 

11 We give the evidence about Illumina’s past behavior little weight in this analysis. 

The MCED-test market today, in which multiple firms are racing to develop their own tests 

and earn a share of what is predicted to be a significant market, is very different from the 

market that existed when Illumina last owned Grail, when the use of liquid biopsies for 

cancer screening was highly experimental and not sure to succeed. It is therefore 

speculative at best to draw conclusions about Illumina’s future actions from its past 

behavior as the owner of Grail. Nor can we draw many insights concerning Illumina’s 

potential post-vertical-merger actions in the MCED-test market by looking at its postvertical-merger actions in the noninvasive-prenatal-tests market, which already had 

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b. 

The Commission also applied the factors first identified in Brown 

Shoe, and later reiterated in Fruehauf, to determine whether the IlluminaGrail merger was likely to substantially lessen competition. These factors 

include: 

[T]he nature and economic purpose of the [transaction], the 

likelihood and size of any market foreclosure, the extent of 

concentration of sellers and buyers in the industry, the capital 

cost required to enter the market, the market share needed by 

a buyer or seller to achieve a profitable level of production 

(sometimes referred to as “scale economy”), the existence of 

a trend toward vertical concentration or oligopoly in the 

industry, and whether the merger will eliminate potential 

competition by one of the merging parties. To these factors 

may be added the degree of market power that would be 

possessed by the merged enterprise and the number and 

strength of competing suppliers and purchasers, which might 

indicate whether the merger would increase the risk that prices 

or terms would cease to be competitive. 

Fruehauf, 603 F.2d at 353. The Commission found that at least four of the 

factors—likely foreclosure, the nature and purpose of the transaction, the 

degree of market power possessed by the merged firm, and entry barriers—

supported a finding of a probable Section 7 violation. We conclude that the 

Commission’s Brown Shoe determination was supported by substantial 

evidence. 

 The first factor the Commission relied upon—likelihood of 

foreclosure—weighs in favor of Complaint Counsel for the reasons set forth 

_____________________ 

multiple competing products on the market at the time of Illumina’s acquisition and where 

the company Illumina acquired was not the first mover in the market. 

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in our ability-and-incentive analysis. The second factor—nature and purpose 

of the transaction—also overlaps significantly with our prior discussion and 

supports Complaint Counsel: The “nature” of the transaction is the 

acquisition of a downstream customer by a sole-source supplier, and the 

“purpose” is to fundamentally transform Illumina’s business model such 

that it would be competing most intensely in the downstream market, i.e., the 

same market in which it has the ability to foreclose. 

As for the third factor—degree of market power—the parties’ 

arguments reflect a broader debate about how to view the potential 

anticompetitive impact of the merger, which we have now already addressed 

twice: whether the Commission was required to look at the immediate effect 

of the merger (in which case, Illumina would be correct to say that the 

acquisition does not change Grail’s share of the MCED-test market because 

its Galleri test is the only product on the market) or could consider the 

merger’s long-term impact. And as we have already explained, the 

Commission properly considered the longer-term impact of the merger and 

found that the merger was likely to lead to a concentration of market power 

in the merged firm. This factor thus favors Complaint Counsel as well. 

Finally, the Commission found that the merger would increase 

barriers to entry in the relevant market. Specifically, based on testimony from 

other MCED-test developers and Complaint Counsel’s expert witness, the 

Commission found that rival firms would be disincentivized from investing 

in MCED-test development post-merger. Illumina suggests that the 

Commission gave too much weight to this self-interested testimony and too 

little weight to other record evidence. But even if we would have found a 

different conclusion to be “more reasonable and persuasive” had we weighed 

the evidence ourselves, that would not be enough to set aside the 

Commission’s finding on this factor under our deferential “substantial 

evidence” review. See Impax, 994 F.3d at 491–92. 

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Nor did the Commission commit legal error by omitting three of the 

Brown Shoe factors from its analysis. There is “no precise formula[]” when 

it comes to applying these factors. Fruehauf, 603 F.2d at 353. Indeed, the 

Supreme Court has found a vertical merger unlawful by examining only three 

of the Brown Shoe factors. Ford Motor Co. v. United States, 405 U.S. 562, 566 

(1972) (considering the nature and purpose of the transaction, increased 

barriers to entry, and increased concentration).

At bottom, the record supports the Commission’s findings that the 

merger will result in the potential foreclosure of a key input by the sole 

supplier, that it was intended to transform Illumina’s business model by 

shifting its focus from NGS products to clinical testing, and that investment 

by other MCED-test developers may be chilled, especially given the 

deferential nature of our review. This was sufficient to support a 

determination that Complaint Counsel had made a prima facie showing that 

the merger was likely to substantially lessen competition under the Brown 

Shoe test.

B. 

Next, we address the Open Offer—the long-term supply agreement 

that Illumina offered to rival MCED-test developers. First, we consider where 

in the Section 7 analysis the Open Offer should be evaluated, and second, we 

turn to how it should be evaluated. 

1. 

Based on the record, the parties’ arguments, and applicable case law, 

we see three different options for the point in the Section 7 analysis at which 

the Open Offer could come into play. The first option—pressed by 

Illumina—is to require Complaint Counsel to account for the Open Offer as 

part of its prima facie case. The second option—adhered to by the 

Commission’s majority opinion—is to only consider the Open Offer at the 

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remedy stage following a finding of liability. The third option—suggested by 

Commissioner Wilson in her concurring opinion—is to place the burden of 

showing the Open Offer’s competitive effects on Illumina as part of its 

rebuttal to the prima facie case. As explained below, we agree with 

Commissioner Wilson. 

a. 

The parties’ divergent views on this issue appear to stem from a 

disagreement over whether the Open Offer should be treated as a “market 

reality”—as Illumina contends—or a remedy—as the Commission found. 

But we do not think that the Open Offer fits neatly into either bucket, and we 

decline to force it into one. 

On the one hand, it is evident that the Open Offer is not just a normal 

commercial supply agreement but instead a direct response to 

anticompetitive concerns over the Illumina-Grail merger. The opening 

sentence of the Open Offer makes this plain; it explains that the Open Offer 

was made “[i]n connection with Illumina’s proposed acquisition of Grail . . . 

to allay any concerns relating to the [merger], including that Illumina would 

disadvantage Grail’s potential competitors.” So, to treat the Open Offer as 

just another fact of the marketplace seems to miss the forest for the trees. 

But, on the other hand, the Open Offer is different in kind from a 

Commission- or court-ordered “remedy,” which, as the Commission itself 

noted, can be imposed “only on the basis of a violation of the law,” i.e., after 

a finding of liability. See Gen. Bldg. Contractors Ass’n, Inc. v. Pennsylvania, 458 

U.S. 375, 399 (1982). Indeed, the Open Offer became effective before the 

evidentiary hearing in this case had even begun and nineteen months before 

the Commission’s liability determination. Thus, the Commission majority’s 

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reliance on cases like Ford Motor Co.12 and du Pont13—which concerned courtordered divestitures after a finding of Section 7 liability—to support its 

position that the Open Offer is a remedy is misplaced. So too is its reliance 

on United States v. Aetna Inc., 240 F. Supp. 3d 1 (D.D.C. 2017), and FTC v. 

Sysco Corp., 113 F. Supp. 3d 1 (D.D.C. 2015). To be sure, both Aetna and 

Sysco—like this case—involved proposals by the parties, not decrees by the 

Commission or court. But in both cases, the proposed divestitures were 

conditional upon the court’s liability determination, coming into effect in 

Aetna only if the court found such divestiture “necessary to counteract the 

merger’s anticompetitive effects,” 240 F. Supp. 3d at 17, and in Sysco “if the 

merger received regulatory approval,” 113 F. Supp. 3d at 15. No such 

conditions accompanied the Open Offer. 

In this sense, the Open Offer is somewhere in between a fact and a 

remedy—a post-signing, pre-closing adjustment to the status quo 

implemented by the merging parties to stave off concerns about potential 

anticompetitive conduct. Take, for example, the arbitration agreement at 

issue in United States v. AT&T, Inc., 310 F. Supp. 3d 161 (D.D.C. 2018), aff’d, 

916 F.3d 1029 (D.C. Cir. 2019). That case concerned a Section 7 challenge to 

the vertical merger between AT&T (which distributes television content via 

its cable platform DirecTV) and Time Warner (which packages television 

content via its networks such as TNT, TBS, CNN, and HBO and licenses 

such networks to distributors). Id. at 167. Shortly after the government filed 

suit, and in an effort to assuage concerns that it would price-discriminate 

against distributors other than AT&T post-merger, Time Warner made an 

irrevocable offer to distributors to engage in “baseball style” arbitration 

_____________________ 

12 405 U.S. at 571. 

13 United States v. E. I. du Pont de Nemours & Co., 366 U.S. 316, 334 (1961). 

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when it came time to renew their licensing agreements. Id. at 184.14 The 

government argued that the arbitration agreements should be “ignored” 

until the remedy stage, but the court disagreed, holding that the agreements 

would have “real-world effect[s]” that should be considered prior to any 

liability determination. Id. at 217 n.30. 

The Northern District of California reached a similar determination 

in FTC v. Microsoft Corp., where the court considered a “binding offer” by 

Microsoft (the details of which are redacted from the opinion) designed to 

assuage the government’s concerns that Microsoft (the manufacturer of the 

popular Xbox gaming console) would pull certain videogames from 

competing consoles following its vertical merger with videogame publisher 

Activision. No. 23-cv-02880-JSC, 2023 WL 4443412, at *15 (N.D. Cal. July 

10, 2023). The court rejected the government’s argument that, under du 

Pont, Microsoft’s offer was merely a “proposed remedy” to be considered 

after a finding of liability and explained that “offered and executed 

agreements made before any liability trial, let alone liability finding,” should 

be considered at the liability phase. Id. 

The Open Offer is akin to the remedial agreements at issue in AT&T 

and Microsoft. And we agree with those courts that such agreements should 

be addressed at the liability—not remedy—stage of the Section 7 

proceedings. 

b. 

Having determined that the Open Offer should be considered at the 

liability stage, the question remains: where does it fit within the burden-

_____________________ 

14 In “baseball style” arbitration, “each party puts forward a final offer before 

knowing about its counterparty’s offer, and the arbitrator chooses between those two.”

AT&T, 310 F. Supp. 3d at 217. 

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shifting framework for determining liability? Illumina urges that Complaint 

Counsel was required to incorporate the Open Offer into its prima facie case. 

Commissioner Wilson says that the Open Offer only comes into play as part 

of Illumina’s rebuttal to Complaint Counsel’s prima facie case. We find the 

latter approach most compatible with the “flexible framework” at play. See 

Chicago Bridge, 534 F.3d at 424. 

As we and our sister circuits have recognized, the burden-shifting 

framework is “somewhat artificial.” FTC v. Butterworth Health Corp., No. 

96-2440, 1997 WL 420543, at *1 (6th Cir. July 8, 1997); accord Chicago Bridge, 

534 F.3d at 424–25. “Conceptually, this shifting of the burdens of 

production, with the ultimate burden of persuasion remaining always with 

the government, conjures up images of a tennis match, where the 

government serves up its prima facie case, the defendant returns with 

evidence undermining the government’s case, and then the government 

must respond to win the point.” FTC v. Univ. Health, Inc., 938 F.2d 1206, 

1219 n.25 (11th Cir. 1991). “In practice, however, the government usually 

introduces all of its evidence at one time, and the defendant responds in 

kind.” Id. Thus, the “evidence is often considered all at once and the burdens 

are often analyzed together.” Chicago Bridge, 534 F.3d at 425. This is 

particularly true in vertical merger cases. In horizontal merger cases, the 

government can “use a short cut to establish [its prima facie case] through 

statistics about the change in market concentration.” AT&T, 916 F.3d at 

1032. No such “short cut” exists in vertical merger cases, and the 

government “must make a ‘fact-specific’ showing” even at the prima facie

stage. Id.

That is precisely what happened in this case. As the government’s 

brief explains, “[h]ere, Complaint Counsel produced evidence in its case-inchief that the Open Offer was ineffective, and Illumina attempted to produce 

contrary evidence in the defense case.” The Commission then siloed all of 

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this Open-Offer-related evidence into the rebuttal stage of its analysis.15 Had 

the Commission applied the correct standard at the rebuttal stage, there 

would have been no error in this approach. Indeed, we approved such a 

methodology in Chicago Bridge. 

As we explained there, in many Section 7 cases, the “[g]overnment’s 

prima facie case anticipates and addresses the respondent’s rebuttal 

evidence.” Chicago Bridge, 534 F.3d at 426. In such a situation, the 

Commission need only “assess[] the rebuttal evidence in light of the prima 

facie case” rather than switch the burden of production back-and-forth. Id. at 

424. 

2. 

At the rebuttal stage of the Section 7 analysis, Illumina bore the 

burden “to present evidence that the prima facie case inaccurately predicts 

the relevant transaction’s probable effect on future competition.” AT&T, 

916 F.3d at 1032 (internal quotation marks and citation omitted). Because 

Complaint Counsel preemptively addressed the Open Offer as part of its 

case-in-chief, Illumina’s burden on rebuttal was “heightened.” Chicago 

Bridge, 534 F.3d at 426. To be sure, Illumina’s burden was only one of 

production, not persuasion; the burden of persuasion remained with 

Complaint Counsel at all times. AT&T, 916 F.3d at 1032. But to satisfy its 

burden of production, Illumina was required to do more than simply put 

forward the terms of the Open Offer; it needed to “affirmatively show[]” why 

_____________________ 

15 As explained above, the Commission majority erroneously viewed the Open 

Offer as a remedy to be properly considered only “at the remedy stage, following a finding 

of liability.” Nonetheless, it examined the Open Offer “at the rebuttal stage” because it 

found that doing so made no difference to “the ultimate analysis or outcome.” But the 

Commission applied the wrong rebuttal-stage standard. We express no view on whether 

the application of the proper standard will change “the ultimate analysis or outcome” in 

this instance. 

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the Open Offer undermined Complaint Counsel’s prima facie showing to 

such an extent that there was no longer a probability that the Illumina-Grail 

merger would “substantially lessen competition.” See United States v. Baker 

Hughes Inc., 908 F.2d 981, 991 (D.C. Cir. 1990) (emphasis added). 

This is where the Commission erred. The Commission held Illumina 

to a rebuttal standard that was incompatible with the plain language of 

Section 7 of the Clayton Act, which only prohibits transactions that will 

“substantially” lessen competition. 15 U.S.C. § 18. And this error pervaded 

the Commission’s analysis of the Open Offer, as the Commission invoked 

the wrong standard in five separate instances. Specifically, the Commission 

held that Illumina was required to “show that the Open Offer would restore 

the pre-[merger] level of competition,” i.e., “eliminate Illumina’s ability to 

favor Grail and harm Grail’s rivals.” In effect, Illumina could only rebut 

Complaint Counsel’s showing of a likelihood of a substantial reduction in 

competition with a showing that, due to the Open Offer, the merger would 

not lessen competition at all. This was legal error. 

The Commission’s standard stems from its mistaken belief that the 

Open Offer is a remedy. Indeed, the source of this total-negation standard is 

the Supreme Court’s holding in Ford Motor Co. that “[t]he relief in an 

antitrust case must be ‘effective to redress the violations’ and ‘to restore 

competition.’” 405 U.S. at 573 (quoting du Pont, 366 U.S. at 326). The 

District of Columbia applied this remedy-stage standard in its liability-stage 

analysis in a string of cases, beginning with Sysco, 113 F. Supp. 3d at 72, 

continuing in Aetna, 240 F. Supp. 3d at 60, and then again in FTC v. RAGStiftung, 436 F. Supp. 3d 278, 304 (D.D.C. 2020).16 But in its most recent 

_____________________ 

16 We express no view as to whether a total-negation standard is appropriate at the 

remedy stage of the Section 7 analysis. 

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case, the District of Columbia reversed course, recognizing that the totalnegation standard “contradicts the text of Section 7.” United States v. 

UnitedHealth Grp. Inc., 630 F. Supp. 3d 118, 132 (D.D.C. 2022). As that court 

explained, “the text of Section 7 is concerned only with mergers that 

‘substantially . . . lessen competition,’” and by requiring on rebuttal a 

showing that the merger will “preserve exactly the same level of competition 

that existed before the merger, the Government’s proposed standard would 

effectively erase the word ‘substantially’ from Section 7.” Id. at 133 (quoting 

15 U.S.C. § 18). 

The Northern District of California agreed with this assessment. See 

Microsoft, 2023 WL 4443412, at *13 (“It is not enough that a merger might 

lessen competition—the FTC must show the merger will probably 

substantially lessen competition.” (citing UnitedHealth, 630 F. Supp. 3d at 

133)). And so do we. To rebut Complaint Counsel’s prima facie case, 

Illumina was only required to show that the Open Offer sufficiently mitigated 

the merger’s effect such that it was no longer likely to substantially lessen 

competition. Illumina was not required to show that the Open Offer would 

negate the anticompetitive effects of the merger entirely. 

C. 

Finally, we turn to Illumina’s other proffered rebuttal evidence—

efficiencies. As it did before the Commission, Illumina contends on appeal 

that the Illumina-Grail merger would have “result[ed] in significant 

efficiencies” which would have “easily offset[] the supposed 

[anticompetitive] harm.”17 To be cognizable as rebuttal evidence, an 

_____________________ 

17 The Commission stated that, to rebut the prima facie case, any substantiated 

efficiencies needed “to offset and reverse the likely anticompetitive effects” of the merger. 

This standard gives us pause for the same reasons discussed with respect to the standard 

used to evaluate the Open Offer. But we need not decide whether such a standard is 

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efficiency must be (1) merger specific, (2) verifiable in its existence and 

magnitude, and (3) likely to be passed through, at least in part, to consumers. 

See FTC v. Penn State Hershey Med. Ctr., 838 F.3d 327, 348–49, 351 (3d Cir. 

2016); Anthem, 855 F.3d at 362. The Commission determined that none of 

Illumina’s proposed efficiencies were cognizable. We find that this 

conclusion was supported by substantial evidence. 

First, Illumina claimed that the merger would reduce (if not eliminate 

entirely) Grail’s obligation to pay Illumina a royalty, which would have 

generated a significant consumer surplus. The Commission found that this 

claimed efficiency was neither merger specific nor likely to be passed through 

to consumers. We find that the former determination was not supported by 

substantial evidence, but the latter was. The Commission’s finding that the 

royalty reduction was not merger specific was based on evidence 

demonstrating that Grail had considered other ways to reduce or eliminate 

the royalty without merging with Illumina, such as a buyout or longer-term 

supply agreement. But the Commission did not fairly consider evidence that 

Grail—in coordination with its bankers at Morgan Stanley—had determined 

that it lacked the leverage necessary to bring Illumina to the table on these 

alternative proposals, leaving merger as the only realistic option. We 

_____________________ 

appropriate for evaluating efficiencies because the Commission did not rely on it. Instead, 

the Commission found that Illumina had failed to substantiate its claimed efficiencies in the 

first place. 

We also note that our court has never addressed the threshold question of whether 

it is proper for a court to take account of a merger’s efficiencies as a defense in a Section 7 

case. But see Anthem, 855 F.3d at 355 (holding that proof of post-merger efficiencies can 

rebut a Section 7 prima facie case); FTC v. Tenet Health Care Corp., 186 F.3d 1045, 1054 

(8th Cir. 1999) (same); Univ. Health, 938 F.2d at 1222 (same). We do not reach that 

question here, either. Instead, we assume arguendo that such a defense can be properly 

considered. Cf. FTC v. Penn State Hershey Med. Ctr., 838 F.3d 327, 348 (3d Cir. 2016) 

(assuming, without deciding, that efficiencies defense was valid); Saint Alphonsus Med. 

Ctr.-Nampa Inc. v. St. Luke’s Health Sys., Ltd., 778 F.3d 775, 790 (9th Cir. 2015) (same). 

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therefore cannot conclude that substantial evidence supported this finding. 

See Universal Camera Corp. v. NLRB, 340 U.S. 474, 488 (1951) (“The 

substantiality of evidence must take into account whatever in the record fairly 

detracts from its weight.”). 

With respect to pass-through, however, there was substantial 

evidence to support the Commission’s finding that, while Grail could 

decrease the price of Galleri (i.e., pass some of the benefit through to 

consumers) following reduction of the royalty, Illumina had not shown a 

likelihood that Grail would do so. Indeed, as explained earlier, substantial 

evidence supported the Commission’s finding that the merger would 

increase Illumina’s incentive to foreclose against Grail’s rivals such that 

competing MCED tests either never make it to market or the costs of 

bringing such tests to market increase. In other words, Grail had no reason to 

pass its royalty-reduction savings through to Galleri’s customers because, if 

any of Grail’s competitors actually made it to market, Grail could force those 

competitors to pass through extra costs to their customers. 

Second, Illumina argued that the merger would eliminate double 

marginalization—i.e., Illumina would no longer charge Grail a margin, as it 

did before the merger—leading to additional consumer surplus. But Illumina 

never put forward a proposed model for calculating this benefit, only an 

“illustrative” one. Illumina does not contest this fact. Rather, Illumina 

contends that it was Complaint Counsel’s burden to model these benefits. 

But when it comes to efficiencies, “much of the information relating to 

efficiencies is uniquely in the possession of the merging firms.” 4A Areeda 

& Hovenkamp, Antitrust Law ¶ 970f (citation omitted). It is 

therefore Illumina—not Complaint Counsel—that “must demonstrate that 

the intended acquisition would result in significant economies.” Univ. 

Health, 938 F.2d at 1223; see also Steven C. Salop, Invigorating Vertical Merger 

Enforcement, 127 Yale L.J. 1962, 1981 (2018) (“Because the merging 

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parties have better access to the relevant information, they also bear the 

burden of producing evidence of efficiency benefits . . . .”). And because 

Illumina failed to demonstrate that this proposed efficiency was verifiable, 

the Commission had substantial evidence in support of its decision not to 

recognize it. 

Third, Illumina contended that the merger would lead to “significant 

supply chain and operational efficiencies” of approximately $140 million 

over a ten-year period. But, again, it presented no model by which it 

calculated this number. And without an underlying model, including the 

assumptions upon which it was based, the Commission had a sound basis to 

conclude that Illumina had failed to carry its burden of showing this efficiency 

was verifiable. See United States v. H & R Block, Inc., 833 F. Supp. 2d 36, 91 

(D.D.C. 2011) (“[T]he lack of a verifiable method of factual analysis resulting 

in the cost estimates renders [the proposed efficiency] not cognizable by the 

Court.”). Plus, record evidence showed that Grail was in the process of 

improving its operations pre-merger, and Illumina had not shown any 

method of quantifying the incremental value, if any, the merger would 

provide with respect to these operational efficiencies. Thus, there was not 

only a verification issue, but a merger-specificity issue as well. 

Fourth, Illumina claimed that the merger would result in significant 

research-and-development efficiencies. But Illumina made no attempt to 

quantify these claimed efficiencies, instead relying on testimony of its 

executives that such efficiencies would be achieved. But “[w]hile reliance on 

the estimation and judgment of experienced executives about costs [or 

innovation] may be perfectly sensible as a business matter, the lack of a 

verifiable method of factual analysis . . . renders [the efficiency] not 

cognizable.” H & R Block, 833 F. Supp. 2d at 91. 

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33 

Fifth, Illumina argued that due to its “regulatory and market-access 

expertise,” the merger would “accelerate” FDA approval and payer 

coverage for Galleri. But the Commission, again supported by substantial 

evidence, found that Illumina had not established that such acceleration 

would actually occur, much less shown how it would be achieved. For 

instance, Illumina’s own financial modeling of the merger did not assume 

that Galleri’s widespread commercialization would be accelerated. Nor did 

it account for the costs that would be associated with achieving any such 

acceleration, such as diverting Illumina personnel to work on Grail projects. 

And in any event, Illumina had failed to demonstrate that its claimed 

“regulatory expertise” was superior to that which Grail already possessed. 

Indeed, Grail had already obtained breakthrough device designation for 

Galleri on its own. Illumina, on the other hand, had only ever obtained premarket approval for one Class III NGS-based diagnostic test, and in that 

instance, a third party sponsored the clinical study upon which approval was 

granted. 

Sixth, Illumina pointed to “international efficiencies,” i.e., that the 

merger would “accelerate the international expansion of Galleri.” But as the 

Commission explained, Illumina “offered no concrete plans regarding 

countries in which international expansion would occur, how much more 

quickly the international expansion would occur, how much additional data 

the international expansion would generate, how much the international 

efforts would cost, or why such international expansion could only be 

achieved through a merger.”18

_____________________ 

18 Because we find that substantial evidence supported the Commission’s 

conclusion that Illumina had failed to substantiate its claimed international efficiencies, we 

do not address the question of whether it is proper to consider efficiencies outside of the 

relevant geographic market. But see Phila. Nat’l Bank, 374 U.S. at 370 (rejecting contention 

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34 

At bottom, an efficiency defense is very difficult to establish. See 4A 

Areeda & Hovenkamp, Antitrust Law ¶ 970a (“[W]hile 

efficiencies are commonly asserted as a defense, they are rarely found 

sufficient to undermine a prima facie case against a merger.”) And 

substantial evidence supported the Commission’s determination that 

Illumina failed to establish cognizable efficiencies here. 

V. 

To sum up, Illumina’s constitutional challenges to the FTC’s 

authority are foreclosed by binding Supreme Court precedent, and 

substantial evidence supported the Commission’s conclusions that (1) the 

relevant market is the market for the research, development, and 

commercialization of MCED tests in the United States; (2) Complaint 

Counsel carried its initial burden of showing that the Illumina-Grail merger 

is likely to substantially lessen competition in that market under either the 

ability-and-incentive test or looking to the Brown Shoe factors; and (3) 

Illumina had not identified cognizable efficiencies to rebut the 

anticompetitive effects of the merger. However, in considering the Open 

Offer, the Commission used a standard that was incompatible with the plain 

language of the Clayton Act. We therefore VACATE the Commission’s 

order and REMAND the case for reconsideration of the effect of the Open 

Offer under the proper standard. 

_____________________ 

that “anticompetitive effects in one market could be justified by procompetitive 

consequences in another”). 

Case: 23-60167 Document: 00517004299 Page: 34 Date Filed: 12/15/2023