Australian regulators have taken Microsoft to court, alleging the company misled around 2.7 million Microsoft 365 users by implying they had to accept a higher-priced AI-powered plan or cancel altogether, while failing to reveal a cheaper alternative that was still available.
What Happened and Why?
The case focuses on Microsoft’s handling of its consumer subscription services, i.e., Microsoft 365 Personal and Family plans, used by millions of households for applications such as Word, Excel, PowerPoint, Outlook and OneDrive. These plans are sold on monthly or annual auto-renewing subscriptions, making them a cornerstone of many users’ digital routines.
Back in October 2024, Microsoft decided to integrate Copilot (its generative AI assistant) into Microsoft 365 Personal and Family subscriptions in Australia. The rollout later expanded worldwide in January 2025. Microsoft described Copilot as a major innovation, offering “AI-powered features” that would “help users unlock their potential”.
However, this integration also triggered quite a sharp price rise. For example, according to the Australian Competition and Consumer Commission (ACCC), the annual Microsoft 365 Personal plan increased from AUD 109 to AUD 159, a rise of 45 per cent, while the Family plan rose from AUD 139 to AUD 179, a 29 per cent increase. Monthly fees also went up.
Only Two Choices Implied
The ACCC says Microsoft notified subscribers through two emails and a blog post, telling them their next renewal would include Copilot and the higher price. The messages reportedly told users that unless they cancelled before renewal, the higher charge would apply automatically.
For example, one such email stated: “Unless you cancel two days before your renewal date, we’ll charge AUD 159.00 including taxes every year. Cancel any time to stop future charges or change how you pay by managing your subscription.”
The regulator now alleges these communications implied users had only two choices, i.e., pay more for Copilot, or cancel their subscription entirely. What the company failed to mention, according to the ACCC, was that there was a third option available, which was switching to what Microsoft called the “Classic” plan.
Classic Plan Is Third Option
Although the Classic plan allowed customers to retain all the features of their existing Microsoft 365 subscription, without Copilot, at the old price, it seems that it was not mentioned in Microsoft’s emails or blog post. Instead, the ACCC says the Classic option only appeared if a customer began the cancellation process, navigating through several screens before the option was revealed.
Given how integral Microsoft 365 has become to home users, e.g., providing essential software and cloud storage, the ACCC argues this created unfair pressure. ACCC chair Gina Cass-Gottlieb said: “The Microsoft Office apps included in 365 subscriptions are essential in many people’s lives, and given there are limited substitutes to the bundled package, cancelling the subscription is a decision many would not make lightly.”
Proceedings Filed Against Microsoft
On 27 October 2025, the ACCC filed proceedings in Australia’s Federal Court against both Microsoft Corporation in the United States and its Australian subsidiary, Microsoft Pty Ltd. The regulator alleges that Microsoft engaged in misleading or deceptive conduct, and made false or misleading representations, in breach of sections 18 and 29 of the Australian Consumer Law.
Specifically, the ACCC says Microsoft falsely represented that users had to accept Copilot to maintain access to their subscription (“Copilot Necessity Representation”), that they had to pay higher prices to continue using Microsoft 365 (“Price Necessity Representation”), and that they only had the two options of accepting the higher price or cancelling (“Options Representation”).
The ACCC claims these representations were false and misleading because the Classic plan was available at the old price, without Copilot, and that by omitting mention of that plan, the regulator says Microsoft denied customers the chance to make an informed decision.
Cass-Gottlieb stated: “We will allege in court that Microsoft deliberately omitted reference to the Classic plans in its communications and concealed their existence until after subscribers initiated the cancellation process to increase the number of consumers on more expensive Copilot-integrated plans.” She added: “We believe many Microsoft 365 customers would have opted for the Classic plan had they been aware of all the available options.”
The regulator argues that this omission caused consumers financial harm. Many subscribers, believing they had no alternative, allowed their subscriptions to renew automatically at the higher Copilot rate, and those users, the ACCC says, effectively paid more for something they might not have chosen.
Why It Matters
The case is significant because it highlights how software subscription models are evolving with the introduction of AI features. For example, Microsoft’s integration of Copilot, and the resulting price increases, demonstrates how companies are bundling AI capabilities into established services, but the ACCC argues that this bundling must be transparent and optional.
For consumers, the issue is both financial and procedural. A 45 per cent increase represents a notable cost rise for households relying on Microsoft 365. More importantly, the regulator argues that burying the cheaper Classic plan behind the cancellation flow deprived users of informed consent, which is a key principle in consumer law.
For Microsoft, the allegations really go beyond pricing. For example, the case also touches on interface design and user experience. Regulators are increasingly focused on so-called “dark patterns”, i.e., design choices that nudge users into particular decisions. The ACCC says Microsoft’s renewal flow was structured to steer users towards the more expensive plan by hiding the cheaper one.
For competitors, the case could shape how AI features are rolled out across subscription products. Companies like Google, Apple and Adobe are all integrating AI into consumer and productivity tools. If the court rules that Microsoft’s conduct was misleading, others may need to rethink how they communicate AI upgrades and pricing options.
Cass-Gottlieb said the regulator’s goal is broader than this single case: “All businesses need to provide accurate information about their services and prices. Failure to do so risks breaching the Australian Consumer Law.”
What Happens Next?
The (Australian) Federal Court will now review the ACCC’s evidence, including Microsoft’s October 2024 blog post and the two key emails sent to subscribers. The regulator is seeking penalties, injunctions, declarations, consumer redress and costs.
If the court finds against Microsoft, penalties could be substantial. For example, under Australian law, the maximum fine for each breach is the greater of AUD 50 million, three times the value of any benefits obtained, or 30 per cent of the company’s adjusted turnover during the breach period. The ACCC has signalled that it will seek a significant penalty, citing the number of affected consumers and the scale of the alleged conduct.
Microsoft – Reviewing The Claims
Microsoft has said it is reviewing the claims, adding that “consumer trust and transparency are top priorities” and that it intends to work constructively with the ACCC. The company has not yet filed a detailed defence.
Wider Context
The case comes at a time when regulators worldwide are scrutinising how big technology companies integrate AI into their products. Microsoft has made Copilot central to its software strategy, embedding it into Windows, Office and Bing. The integration has been marketed as a major advance, but it has also raised questions about whether AI is being used to justify higher subscription fees.
It’s worth noting here that, earlier in 2025, Microsoft faced separate antitrust scrutiny in Europe, where it agreed to unbundle Teams from Microsoft 365 after competition regulators raised concerns about unfair bundling. The Australian case is different in that it focuses on consumer fairness rather than competition, but both point to a growing willingness among regulators to challenge how Microsoft structures its product offerings.
The proceedings also coincide with a wider policy debate about consumer protection in digital markets. Regulators in the UK, EU and Australia have been warning companies against design choices that obscure cheaper or less data-intensive options. The ACCC’s case against Microsoft is one of the first major tests of these principles in the context of AI subscription pricing.
Challenges and Criticisms
Microsoft’s defence is expected to centre on whether its communications were genuinely misleading. For example, the company may argue that the price rise and integration were communicated transparently and that the Classic plan was a courtesy option, not an advertised tier.
Critics, however, say the case exposes how complex modern subscription models have become. Consumer advocates argue that when essential software like Microsoft 365 becomes tied to expensive AI add-ons, users may have little real choice, particularly if they are steered away from cheaper options through interface design.
The ACCC alleges Microsoft deliberately hid the Classic option to increase uptake of Copilot, describing the concealment as an intentional strategy. It says consumers’ dependence on Microsoft’s software made them more vulnerable to such tactics.
Meanwhile, business users and consumers have voiced frustration online. For example, some told Australian media they were surprised to find higher charges on renewal and were unaware that an alternative existed. Others have reportedly raised concerns that global technology companies may be using AI upgrades as a pretext for universal price increases.
The case is now being closely watched by regulators and consumer organisations worldwide, who see it as an early test of how AI-linked price changes will be governed under consumer law. For Microsoft, the outcome could determine how it promotes future Copilot features, and how transparent it will need to be with millions of subscribers when the next upgrade arrives.
What This Means For Your Business?
If the ACCC’s case succeeds, it could redefine how companies communicate subscription changes and AI integrations worldwide. The issues at stake extend far beyond Microsoft’s customer base in Australia. For example, transparency in pricing, honest representation of product features, and fair presentation of choices are all central to maintaining consumer trust in a digital economy that increasingly runs on subscriptions rather than ownership. The Court’s decision will, therefore, be closely analysed by consumer regulators, legal teams and software firms around the world.
For Microsoft, the financial penalties may be less significant than the reputational and operational consequences. The company’s strategy of embedding Copilot into every tier of its software ecosystem depends on users accepting AI features as a normal, even necessary, part of productivity software. If regulators conclude that the rollout was handled in a way that misled users, Microsoft may need to re-evaluate how it introduces future AI upgrades and how clearly it differentiates between optional and bundled products. Other technology firms will also be watching closely, given that most are following a similar path of building premium AI layers into existing subscriptions.
For UK businesses, the case highlights how global developments in consumer law can have local implications. The Competition and Markets Authority has already warned UK companies about interface design that conceals key information or discourages users from exercising choice. If Microsoft is found to have breached consumer law in Australia, it may prompt British regulators to take a closer look at how AI-driven services are marketed and priced in the UK. It could also encourage businesses that depend on Microsoft 365 to examine their own contracts and renewal processes more carefully, particularly where subscription changes are linked to new technologies or price adjustments.
The broader lesson is that as AI becomes more integrated into software, the boundary between innovation and obligation must remain clear. Consumers need to know when they are paying extra for AI functionality and when they can reasonably decline it. For regulators, the challenge will be to ensure that product evolution does not erode transparency or consumer control. For the tech industry, the message is that trust will be built not only through advanced technology, but through openness about what that technology costs, how it is delivered, and the real choices available to those who use it.
