The Australian Competition and Consumer Commission (ACCC) has initiated legal proceedings against Microsoft in the Federal Court for allegedly misleading approximately 2.7 million customers regarding subscription options for its Microsoft 365 service. The case, filed in New South Wales, accuses Microsoft Australia and its parent company in the United States of violating Australian Consumer Law through deceptive practices.

Subscription Options and Price Changes

The ACCC reports that the issue arose when Microsoft incorporated its AI assistant, Copilot, into Microsoft 365 Personal and Family plans on Thu, Oct 31, 2024. Customers were allegedly informed that maintaining their subscription required accepting Copilot and paying increased prices, or cancelling their plan. However, the ACCC claims there was a third option—a “Classic” plan excluding Copilot but offering the same features at the previous price.

According to the ACCC, Microsoft did not adequately inform customers about the Classic plan, limiting their ability to make informed decisions. It is believed that many customers would have opted to remain on their previous plan had they been aware of this alternative.

Customer Communications

Between October 2024 and January 2025, Microsoft communicated with subscribers via two emails and a blog post regarding price increases related to Copilot. These communications suggested that to continue using Microsoft 365, customers needed to accept the AI integration and pay increased prices.

For Microsoft 365 Personal plan subscribers, the annual price rose by 45%, from $109 to $159. For Family plans, the cost increased by 29%, from $139 to $179. The ACCC argues these messages misled subscribers into believing they had only two options: accept the higher price or cancel their subscription.

The existence of the Classic plan was not prominently disclosed, and customers could only discover it by initiating the cancellation process. During this process, an option was revealed to retain their current plan at the old price, without Copilot.

Allegations Against Microsoft

The ACCC contends that Microsoft’s communications breached sections 18 and 29 of the Australian Consumer Law, which prohibit misleading or deceptive conduct and false representations about services and pricing.

The ACCC alleges Microsoft misrepresented three key points: the necessity to accept Copilot to retain a subscription, the obligation to pay higher prices, and the binary choice of upgrading or cancelling. These representations were reportedly made both directly and indirectly through the emails’ wording and the omission of the Classic plan.

Furthermore, the ACCC accuses Microsoft of deliberately concealing the Classic plan to discourage customers from choosing it, leading them to renew at a higher cost, unaware of their ability to maintain their old plan.

Legal Actions and Implications

The ACCC seeks penalties, injunctions, declarations, consumer compensation, and costs from the Federal Court. It also requests a ruling that Microsoft violated the law by misleading customers about their subscription choices.

Under Australian Consumer Law, the maximum penalty for corporations is the greater of $50 million, three times the benefit gained, or 30% of turnover during the breach period. The court will determine the final penalty should Microsoft be found in violation of the law.

The ACCC’s case targets only home-use plans (Personal and Family) and excludes business or enterprise subscriptions. The regulator notes that consumer reports and online discussions helped uncover the issue, indicating that many users were unaware of the Classic plan until attempting to cancel.

This action forms part of the ACCC’s efforts to ensure fair trading in the digital economy, asserting that Microsoft’s conduct denied customers a fair choice and potentially caused financial harm to Australians relying on Microsoft 365 for everyday use.