Australia’s competition regulator has initiated a significant legal battle against Microsoft, filing a lawsuit in Federal Court that accuses the technology corporation of misleading approximately 2.7 million local subscribers. The Australian Competition and Consumer Commission, known as the ACCC, alleges that Microsoft engaged in deceptive practices regarding recent price increases tied to the integration of its artificial intelligence assistant, Copilot, into the popular Microsoft 365 software suite. The core of the complaint centers on the claim that Microsoft failed to transparently inform customers of all their options, effectively pushing them toward more expensive subscription tiers.
The lawsuit, filed against both Microsoft Australia and its U.S. parent company, contends that millions of personal and family plan subscribers were presented with a false dilemma: either accept a substantial price hike to incorporate the new AI features or cancel their service entirely. Regulators argue that Microsoft deliberately concealed a third, more affordable choice—the ability to continue with their existing “Classic” plans at the original price, without the addition of Copilot. This crucial option, the ACCC claims, was only made visible to users after they had already begun the process of unsubscribing, a practice the commission has labeled as deliberately misleading and a violation of Australian consumer protection laws. The legal action seeks substantial financial penalties and compensation for affected consumers, highlighting a growing global trend of regulatory scrutiny over the marketing of AI products.
Details of the Allegations
The legal challenge from the ACCC hinges on communications sent by Microsoft to its Microsoft 365 subscribers beginning around October 31, 2024. According to the commission’s filings, these communications, which included emails and blog posts, informed users of upcoming changes to their plans. The central message was that Copilot, Microsoft’s generative AI assistant, would be integrated into the software package, accompanied by a mandatory price increase upon the next renewal cycle. The ACCC alleges these notices were misleading by omission, as they failed to mention the existence of “Classic” plans that would allow customers to opt out of the AI upgrade and its associated cost.
Investigators claim this was a calculated strategy to steer consumers toward higher-margin products. The lawsuit asserts that by presenting the situation as a binary choice—upgrade or cancel—Microsoft exploited customer inertia and the high switching costs associated with moving away from a deeply integrated office software ecosystem. ACCC Chair Gina Cass-Gottlieb stated that the regulator will argue in court that Microsoft deliberately omitted any reference to the classic plans in its primary communications. The commission contends that the placement of this option deep within the cancellation pathway proves it was intentionally hidden from plain view, preventing customers from making a fully informed decision about their subscriptions and pressuring them to accept the price hike unnecessarily.
Financial Impact on Consumers
The pricing changes at the heart of the lawsuit represent a significant cost increase for Australian households and individuals. The ACCC’s court filings detail the substantial nature of the price hikes tied to the Copilot integration. For subscribers to the Microsoft 365 Personal plan, the annual fee surged by 45 percent, rising from A$109 to A$159. Customers on the Microsoft 365 Family plan, which allows for multiple users, faced a 29 percent increase, with their annual subscription cost jumping from A$139 to A$179.
These increases affected a massive subscriber base, with the ACCC identifying approximately 2.7 million personal and family accounts in Australia that were subject to the new pricing structure. The regulator emphasized that for many users, Microsoft 365 is not a discretionary purchase but an essential tool for work, school, and personal administration. This reliance, Cass-Gottlieb noted, makes the decision to cancel a subscription one that consumers would not take lightly, giving Microsoft immense leverage. The ACCC argues that by obscuring the cheaper alternative, Microsoft capitalized on this dependency to increase revenue at the direct expense of loyal customers who were unaware of their right to maintain their existing service level at the prior price.
Regulatory Action and Potential Penalties
In response to what it deems a serious breach of consumer trust, the ACCC is pursuing a broad range of legal remedies against Microsoft. The commission has asked the Federal Court to issue injunctions to halt the allegedly misleading conduct, preventing the company from continuing the practice. Furthermore, the regulator is seeking orders for consumer redress, which could potentially involve compensation for the millions of customers who may have overpaid for their subscriptions under the impression they had no other choice. The lawsuit also calls for Microsoft to cover the ACCC’s legal costs.
The most significant consequence for Microsoft could come in the form of financial penalties. Under Australian Consumer Law, corporations found guilty of misleading conduct face severe fines. The law allows for penalties of up to A$50 million per breach. Alternatively, the fine can be calculated as three times the value of the benefit obtained from the illegal conduct or, if the benefit’s value cannot be determined, 30 percent of the company’s adjusted turnover during the period the breach occurred. While the final amount would be determined by the court, the potential for a multi-million dollar penalty is substantial, intended to serve as a powerful deterrent against such practices in the future. The ACCC has stated it will not speculate on a final figure but has made clear it is seeking a penalty that reflects the scale and seriousness of the alleged misconduct.
Microsoft’s Response and Industry Context
In the wake of the lawsuit’s filing on October 27, 2025, Microsoft has adopted a measured public stance. A company spokesperson acknowledged the ACCC’s legal action and confirmed that the corporation is reviewing the details of the complaint. In its initial statement, Microsoft reiterated its commitment to consumer trust and transparency, asserting that these principles have been priorities for the company. The tech giant stated it would continue to work cooperatively with the regulator to address the concerns raised in the lawsuit. However, it did not offer a detailed defense or a direct response to the specific allegation that it intentionally hid the “Classic” plan option from its customers.
This case emerges at a critical moment for the global technology industry, as major players race to integrate and monetize artificial intelligence capabilities within their flagship products. The push to bundle AI assistants like Copilot into existing software subscriptions is a key strategy for increasing average revenue per user. However, this lawsuit from Australia signals that regulators are closely monitoring the tactics used to implement these new pricing models. It highlights a growing international focus on ensuring that marketing for AI-enhanced services is transparent and that consumers are not unfairly cornered into expensive upgrades. The outcome of this legal challenge could set an important precedent for how tech companies are required to communicate pricing and service changes in the rapidly evolving AI landscape.
