Google and Facebook are among a group of net heavyweights taking the French government to court.
The legal challenge at the State Council, France's highest judicial body, has been brought by The French Association of Internet Community Services (ASIC) and relates to government plans to keep web users' personal data for a year.
More than 20 firms are involved, including eBay and Dailymotion.
The law obliges a range of e-commerce sites, video and music services and webmail providers to keep a host of data on customers. This includes users' full names, postal addresses, telephone numbers and passwords.
The data must be handed over to the authorities if demanded. Police, the fraud office, customs, tax and social security bodies will all have the right of access.
ASIC head Benoit Tabaka believes that the data law is unnecessarily draconian. ASIC also thinks that passwords should not be collected and warned that retaining them could have security implications.
The French parliament has approved a controversial law extending mass snooping capabilities of the intelligence services, with the aim of preventing Islamist attacks.
The law on intelligence-gathering, adopted by 438 votes to 86, was drafted after muslim terrorists attacked the Charlie Hebdo office and a Jewish supermarket.
The Socialist government says the law is needed to take account of changes in communications technology. But critics say it is a dangerous extension of mass surveillance.
The new law define new purposes for which secret intelligence-gathering may be used. It sets up a supervisory body, the National Commission for Control of Intelligence Techniques (CNCTR), with wider rules of operation. And inevitably it authorises new
methods, such as the bulk collection of metadata via internet providers
One online advocacy group, La Quadrature du Net, wrote after the vote:
Representatives of the French people have given the Prime Minister the power to undertake massive and limitless surveillance of the population.
France's highest authority on constitutional matters has approved a controversial bill that gives the state sweeping new powers to spy on citizens.
The constitutional council made only minor tweaks to the legislation, which human rights and privacy campaigners, as well as the United Nations, have described as paving the way for very intrusive surveillance and state-approved eavesdropping and
An 18-strong United Nations committee for human rights warned that the surveillance powers granted to French intelligence agencies were excessively broad . It said the the bill grants overly broad powers for very intrusive surveillance on
the basis of vast and badly defined objectives and called on France to guarantee that any interference in private life must conform to principles of legality, proportionality and necessity .
Amnesty International warned that the French state was giving itself extremely large and intrusive powers with no judicial control.
The bill gives the country's secret services the right to eavesdrop on the digital and mobile phone communications of anyone linked to a terrorist inquiry and install secret cameras and recording devices in private homes without requesting prior
permission from a judge.
Intelligence agencies can also place keylogger devices on computers that record keystrokes in real time. Internet and phone service providers will be forced to install black boxes that will alert the authorities to suspicious behaviour
online. The same companies will be forced to hand over information if asked. Recordings can be kept for a month, and metadata for five years.
A special advisory group, the National Commission for the Control of Intelligence Techniques, made up of magistrates, MPs and senators from the upper house of parliament, will be consulted instead of a judge.