Germany's cartel office has found that Facebook abused its dominant market position, challenging the social network's model of monetising the personal data of its 2 billion users worldwide through targeted advertising.
Presenting preliminary findings of its 20-month-old probe, the Federal Cartel Office said Facebook held a dominant position among social networks - a characterisation the company dismissed as "inaccurate".
The case is being closely watched in Germany, where concerns over data privacy are strong due to a history of state surveillance under Nazi and Communist rule.
Facebook has been running an ad campaign to try to allay those fears.
Separately, Berlin will introduce a law in the new year imposing fines of up to €50 million on social media platforms that fail quickly to remove posts that propagate hate speech - a crime in Germany.
The competition authority objected to Facebook's requirement that it gain access to third-party data when an account is opened - including from its own WhatsApp and Instagram products - as well as how it tracks which sites its users access.
"Above all we see the collection of data outside the Facebook social network and its inclusion in the Facebook account as problematic," cartel office President Andreas Mundt said in a statement.
This happens when a Facebook user views a page with a Facebook 'Like' button embedded in it - even if they don't click on the button itself, he added.
Yesterday, France's data privacy watchdog said it may fine WhatsApp, the encrypted messaging app, if it does not comply with an order to bring its sharing of user data with Facebook into line with French privacy law.
Responding, Facebook said the cartel office had "painted an inaccurate picture" but said it would cooperate with the German investigation.
"Although we are popular in Germany, we are not dominant," its head of data protection, Yvonne Cunnane, said in a blog post.
About 41% of Germans have active Facebook accounts, below the 66% in the United States, 64% in Britain and 56% in France, according to a survey by social media agencies Hootsuite and We Are Social.
"A dominant company operates in a world where customers don't have alternatives," said Ms Cunnane, adding that the average smartphone user now accesses seven different communications apps or services.
Facebook, founded by CEO Mark Zuckerberg and fellow Harvard students in 2004, has grown exponentially to become the world's top social network and is valued on the stock market at $525 billion.
It has done so by providing free access to users while analysing their online behaviour to target advertising, where its revenues rose by half in the third quarter to $10 billion.
The probe by the German cartel office has raised eyebrows because some European Union officials see it as encroaching into an area properly overseen by data-protection authorities under EU-wide rules.
In her blog post, Ms Cunnane noted that Facebook abided by European data-protection laws and would comply with a new General Data Protection Regulation when it comes into force in the EU in May 2018.
The cartel office, which said it was working closely with data- and consumer-protection bodies, expects to publish the final results of its investigation into Facebook in the early summer of 2018 at the earliest.
Although the probe will not result in a fine, it could lead to assurances being sought from Facebook, or certain of its practices being banned, a cartel office spokesman said by way of clarification.
Facebook reveals data on copyright complaints
Separately, Facebook removed nearly 3 million posts, including videos, ads and other forms of content, from its services during the first half of 2017 following complaints of counterfeiting and copyright and trademark infringement.
The worldwide data on intellectual property-related takedowns is a new disclosure for Facebook as part of its biannual "Transparency Report," Chris Sonderby, a deputy general counsel at the firm, said in a blog post.
"We believe that sharing information about (intellectual property) reports we receive from rights holders is an important step toward being more open and clear about how we protect the people and businesses that use our services," Sonderby wrote.
The ninth Facebook transparency report also showed that government requests for information about users increased 21% worldwide compared with the second half of 2016, from 64,279 to 78,890.
For intellectual property disputes, Facebook offers monitoring tools that alert rightsholders to suspected copies of their videos and songs on Facebook and use of their brand.
Rightsholders can send takedown requests for unauthorised uses to a team of Facebook content analysts.
Entertainment and media industry groups have long expressed frustration with the process, contending that they bear too much of the internet policing burden and that online services should be more proactive about stemming infringement.
Facebook did not supply data about earlier periods or release individual requests, a level of detail that advertising rival Alphabet provides for requests to remove Google search results.
Aggregate data shows Facebook received about 377,400 complaints from January to June, with many referencing multiple posts. About 60% of the reports related to suspected copyright violations on Facebook.
A "small fraction" of requests were excluded because they were not sent through an official form, Facebook said.
The company removed user uploads in response to 81% of filings for counterfeiting, 68% for copyrights and 47% for trademarks, according to its report. The percentages were roughly similar for Instagram.