Germany's cartel office is investigating Facebook for suspected abuse of market power over breaches of data protection laws, in what is the first formal investigation of the social network for violating competition rules.
The watchdog said it suspects Facebook's terms of service regarding how the company makes use of users' data may abuse its possibly dominant position in the social networking market. It plans to examine whether users have been properly informed about how their personal data may be obtained by the company.
Facebook, the world's biggest social network with 1.6 billion monthly users, earns revenue from advertising based on data it gathers about its users' social connections, opinions, and activities in their postings.
"For advertising-financed internet services such as Facebook, user data is hugely important," Federal Cartel Office president Andreas Mundt said.
"For this reason, it is essential to also examine under the aspect of abuse of market power whether the consumers are sufficiently informed about the type and extent of data collected."
A Facebook spokeswoman on Wednesday said: "We are confident that we comply with the law and we look forward to working with the Federal Cartel Office to answer their questions."
The company has faced criticism from politicians and regulators in Germany -- where data protection is strictly regulated -- over its privacy practices and its slow response to anti-immigrant postings by neo-Nazi sympathisers.
EU officials have also expressed support for the view that Facebook's use of data might expose it to regulatory action on competition grounds.
The cartel office said it was coordinating its investigation with the European Commission, competition authorities in other European Union states, data protection authorities in Germany, and consumer rights groups.
French and Irish competition regulators said they were not actively involved with the German case. A spokesman for the Belgian Competition Authority declined to comment on whether it was cooperating with the German investigation, while the British regulator was not immediately reachable.
"This is an unusual case in many respects," said Mark Watts, head of data protection at London-based law firm Bristows.
He said it was the first time the volume of personal data a company held was such a significant factor in an investigation into whether a company has abused its dominant position.
Companies can theoretically face a fine of up to 10 percent of their annual turnover by the German competition regulator if they are found to have abused a dominant market position. But the cartel office has never levelled a maximum penalty.
Last November, a Belgian court ordered Facebook to stop tracking non-Facebook web users through social plugins on third-party websites.
Facebook follows the web activity of individuals who do not hold Facebook accounts through a special cookie known as datr in the code of its social plugins and on Facebook.com. However, Facebook has previously said the datr cookie is necessary to secure its services from data breaches.
This order was passed after the Belgian Privacy Commission last May undertook its own experiment to examine how Facebook processes the data of both those who have signed up to the social network as well as non-users and those who have explicitly opted out of using it.
The watchdog warned that Facebook was tracking European internet users without their consent, and that "Facebook disregards European and Belgian privacy legislation in several ways". It also criticised the site for not being explicit enough about how data it collects will be used, and raised concerns about users' inability to opt out of sharing location data or being featured in Facebook's Sponsored Stories.
Finland also cracked down on social media and online messaging providers at the start of last year with the introduction of a new law that required to ensure confidentiality of communications rules applied to all electronic communication distributors, including social media companies.
"The new law also covers OTT [over-the-top content] players as far as privacy and security provisions are concerned," said Olli-Pekka Rantala, director of the communications market at the Finnish Ministry of Transport and Communications at the time.
"The provisions would apply to such matters as confidential messages exchanged via social media. This is a small step towards a level playing field between traditional telecom operators and new internet players but it was a big change in principle."
Facebook owns four of the top eight social network services globally including its core profile service, two separate instant messaging services, WhatsApp and Facebook Messenger, and its photo and video-sharing social network service Instagram.
Facebook has nearly twice the number of users as the world's second-largest social network, Tencent's QQ of China. Nearly 84 percent of the members of Facebook's core social network are outside the United States and Canada, which generated half its nearly AU$24.66 billion in revenues in 2015.