FRANKFURT (Reuters) - Germany's cartel office is investigating Facebook (FB.O) for suspected abuse of market power over breaches of data protection laws in the first formal probe of the social network for violating competition rules.
The watchdog said it suspected 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 planned to examine whether users were properly informed about how their personal data would be obtained by the company.
Facebook, the world's biggest social network with 1.6 billion monthly users, earns revenues 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 are 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 said on Wednesday: "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 sympathizers.
Co-founder and Chief Executive Mark Zuckerberg visited Berlin on a charm offensive last week.
"We welcome the approach of the Cartel office," Hamburg Data Protection Commissioner Johannes Caspar told Reuters. "Whoever has power over user data gets market power and vice versa."
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 probe 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 probe, 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.
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 the twice the number of users as the world's second largest social network, Tencent's (0700.HK) 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 $18 billion in revenues last year.
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 leveled a maximum penalty.
European regulators have begun debating the role that vast collections of "big data" - collected from billions of Web searches, messages and other online interactions - give Internet giants in marketing and commerce and how such data makes it difficult for smaller businesses to compete in those areas.
"User data is often the currency which consumers pay for supposedly free services," said Klaus Mueller, chairman of the Federation of German Consumer Organizations. "Consumers have no adequate alternative. They can't just transfer their user data to other portals."
The cartel office had already signaled last month it was ready to consider data protection issues as raising potential competition concerns.
European Commission spokesman Ricardo Cardoso said the EU executive shared the view of the German cartel office that the mere infringement of data protection rules by a dominant company did not automatically amount to a competition violation.
"However, it cannot be excluded that a behavior that violates data protection rules could also be relevant when investigating a possible violation of EU competition rules," he added, while declining specific comment on the new case.
Speaking in Germany in January, top EU antitrust enforcer Margrethe Vestager said her agency was taking a harder look at whether the collection of vast amounts of consumer data by big Internet companies violates competition rules.
By contrast, U.S. privacy law enforcement remains limited to gross privacy violations where it can be show companies failed to properly safeguard customer information.
The EU has accused Facebook rival Google, a unit of Alphabet Inc (GOOGL.O), of favoring its own shopping services in search results at the expense of rivals, and is weighing possible sanctions against the world's most popular search engine.
However, the commission previously considered and rejected big data issues when it approved Google's acquisition of online advertising firm DoubleClick in 2008 and Facebook's purchase of WhatsApp in 2014.
(Additional reporting by Georgina Prodhan and Harro ten Wolde in Frankfurt, Klaus Lauer in Berlin, Matthias Inveradi in Duesseldorf, Conor Humphries in Dublin, Phil Blenkinsop and Foo Yun Chee in Brussels, Mathieu Rosemain in Paris, Paul Sandle in London and Diane Bartz in Washington; editing by Louise Heavens and Giles Elgood)