The European Union started legal action against Britain on Tuesday for not applying EU data privacy rules that would restrict an Internet advertising tracker, called Phorm, from watching how users surf the web.
They also warned that they could force social networking sites like Facebook or MySpace to hide minors' profiles from search engines.
The European Commission said Britain should outlaw Internet traffic interception and monitoring unless users give explicit consent that their behavior can be tracked and analyzed.
It said it had received numerous complaints about BT Group PLC, which tested Phorm in 2006 and 2007 without informing customers involved in the trial. Phorm analyzes Internet users' behavior so it can target them with advertising that might appeal to them.
"Such a technology in the view of the European Commission and European data protection law can only be used with the prior consent of the user," said EU spokesman Martin Selmayr.
Regulators sent a first legal warning to Britain on Tuesday, asking it to explain or change the way it interprets EU rules, because it currently allows interception when it is unintentional or when a tracker has 'reasonable grounds' to believe that consent was given.
Britain has two months to reply. The European Commission can issue more warnings before it can take a government before an EU court, where it may be ordered to change national law or face daily fines.
BT sought consent from users when it once again tried out Phorm from October to December 2008 in an invitation-only trial. The company says on its website that the trial didn't keep or pass on information that could identify users and what they did. It gave no comment on Tuesday on the EU statement.
Internet companies, privacy advocates and regulators disagree on what kind of traffic data is personal — such as IP addresses that give a location — and whether storing information on a crowd of people might evade strict privacy rules because they cannot be identified individually.
Phorm plans to work with three Internet operators reaching 70 percent of Britain's broadband market — BT Group PLC, Virgin Media Inc. and Carphone Warehouse Group PLC's TalkTalk. Virgin said it would like to try out the technology but would do so only with users' consent.
Messages left with Talk Talk and the London office of Phorm Inc. were not immediately returned. Britain's Information Commissioner's Office, which is charged with protecting personal information in the country, said it could not comment on the EU move.
Separately, EU Media Commissioner Viviane Reding said that social networking sites needed to move fast to step up default privacy settings, especially for younger users — and she would table new EU rules if sites didn't act.
"Is every social networker really aware that technically, all pictures and information uploaded on social networking profiles can be accessed and used by anyone on the web?" she asked in a video message.
"Do we not cross the border of the acceptable when, for example, the pictures of the Winnenden school shooting victims in Germany are used by commercial publications just to increase sales?"
She also warned about radio frequency identification, or RFID, tags that can be used as an electronic label on clothing or food to pass on information such as expiry dates or prices to a store cashier or stock checker.
"No European should carry a chip in one of their possessions without being informed precisely what they are used for, with the choice to remove or switch it off at any time," she said.
Stores and other smart tag users complain that some of these requirements to inform customers or switch off the tags could be burdensome, unnecessary and might prevent them from investing in the new technology.