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Australia’s consumer watchdog launched Federal Court proceedings against Microsoft on Monday, alleging the tech giant misled 2.7 million customers by concealing a cheaper subscription option when it integrated artificial intelligence into its Microsoft 365 plans.
The Australian Competition and Consumer Commission accused Microsoft Australia and its U.S. parent company Microsoft Corporation of deliberately hiding the existence of “Classic” plans that allowed subscribers to keep their existing features without AI integration and without price increases ranging from 29% to 45%.
“Following a detailed investigation, 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,” ACCC Chair Gina Cass-Gottlieb said Monday.
The case centers on Microsoft’s rollout of Copilot, its generative AI assistant, which became mandatory for Microsoft 365 Personal and Family subscribers starting Oct. 31, 2024.
The Hidden Option
According to the ACCC, Microsoft sent two emails and published a blog post telling auto-renewing subscribers they faced only two choices: accept the AI integration with higher prices or cancel their subscription entirely.
The watchdog alleges Microsoft failed to disclose a third option. Subscribers could access Microsoft 365 Personal or Family Classic plans, retaining all their original features at the previous lower price, but only by navigating through the cancellation process.
“We allege that this was misleading because in fact there was a third hidden option which allowed subscribers to continue their existing plan without Copilot and without any price increase,” Cass-Gottlieb told reporters Monday. “This plan only became available to a customer if the customer commenced cancellation of their subscription.”
The Classic plans appeared only after subscribers clicked into their account settings, selected “Cancel subscription,” and proceeded to the following page.
Substantial Price Jumps
The Copilot integration came with significant cost increases. Microsoft raised the annual Personal plan subscription from $109 to $159, a 45% jump. The Family plan increased from $139 to $179 annually, a 29% rise.
Microsoft sent the first email to affected subscribers on Jan. 9, 2025, informing them AI features were being added and prices would increase at their next renewal date. A second email arrived seven days before renewal, reminding customers they would be charged the higher amount unless they canceled at least two days before the renewal date.
Neither communication mentioned the Classic plans.
“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,” Cass-Gottlieb said.
Consumer Reports Triggered Investigation
The ACCC’s case emerged from more than 100 complaints filed by Australian consumers to the commission’s Infocentre in late 2024 and early 2025.
“I want to acknowledge and thank the more than 100 Australian consumers who made complaints to the ACCC’s Info Centre,” Cass-Gottlieb said. “It was of great assistance to us that some consumers also identified the hidden option that only became available to them when they commenced cancellation of their subscription.”
The commission also drew on commentary from online forums, including Reddit, to build its case.
“Information provided by consumers to the ACCC’s Infocentre was critical to alerting the ACCC to the alleged conduct, particularly in identifying the availability of the Classic plan through subscribers’ cancellation flows,” the commission stated in its announcement.
What the ACCC Wants
The consumer watchdog is seeking court orders including financial penalties, injunctions, declarations of law breach, consumer compensation, and legal costs.
“We allege millions of Australian consumers were deprived of the opportunity to make an informed choice about the subscription options available to them,” Cass-Gottlieb said.
The ACCC emphasized it takes no issue with Microsoft offering new services or changing prices.
“Microsoft and businesses are free to change the services that they offer and also to choose as they see fit how to price for them,” Cass-Gottlieb said. “We have taken these proceedings today because we allege millions of Australian consumers were deprived of the opportunity to make an informed choice about the subscription options available to them.”
When asked about potential penalties, Cass-Gottlieb said the commission views the alleged conduct as serious given the number of affected consumers, Microsoft’s size, and the essential nature of the software.
“We will seek a penalty that achieves both specific deterrence of such conduct happening again by Microsoft and also general deterrence for all companies, whether companies operating in the tech sector or more broadly,” she said.
Maximum Penalties on the Table
Under Australian Consumer Law, corporations face maximum penalties of the greater of $50 million, three times the total benefits obtained from the conduct, or 30% of the corporation’s adjusted turnover during the breach period if benefits cannot be determined.
The actual penalty, if any, would be determined by the Federal Court.
What Affected Customers Can Do
The ACCC said subscribers who have not yet had their subscription renewed since July 8, 2025, may be able to access the Classic plan by selecting the cancel option and following steps in the cancellation process.
“For a number of consumers, you will be able, as we understand, to contact through your customer account process for your Microsoft plan, to be able to contact Microsoft and to elect to return to and stay with your existing plan prior to the auto renewal,” Cass-Gottlieb said.
She noted this depends on individual renewal dates and advised consumers having trouble finding the option to contact Microsoft directly.
The ACCC is pursuing consumer redress orders but warned that outcomes depend on the proceedings and whether the court finds Microsoft violated the law.
Timeline of Events
Microsoft’s blog post on Oct. 31, 2024, announced the changes, stating the price increase would “reflect the value we’ve added over the past decade and enable us to deliver new innovations for years to come.”
For a subscriber who purchased an annual Microsoft 365 Personal subscription for $109 on April 19, 2024, with auto-renewal enabled, the first notification of changes arrived Jan. 9, 2025. A second reminder came April 13, 2025, one week before the renewal date. The subscription auto-renewed at $159 on April 19, 2025, with the subscriber unaware of the Classic plan option.
About Microsoft 365 and Copilot
Microsoft 365 Personal and Family plans, designed for home use rather than business or enterprise, include software products like Word, Excel, PowerPoint and OneNote, collaboration tools like Outlook, Teams and SharePoint, and cloud storage through OneDrive.
Microsoft launched Copilot as its consumer-facing generative AI product in 2023. The company integrated Copilot into Microsoft 365 Personal and Family subscriptions in Australia on Oct. 31, 2024, then rolled out the integration worldwide in January 2025 with varying price increases in each jurisdiction.
The ACCC’s case applies only to Personal and Family plans for home use and does not involve business or enterprise subscriptions.
Fast-Moving Investigation
When asked why the ACCC waited nearly a year to file proceedings, Cass-Gottlieb defended the timeline.
“This has actually been a very quick investigation,” she said. “I understand the importance of moving quickly, and we have moved quickly. It is very important in order to be able to take strong, reasonably based decisions proceedings in court that we move after having investigated and properly investigated what the communications were, what the process and internal corporate processes were.”
The commission filed before the one-year anniversary of first being notified of the issue.
“All businesses need to be aware that they are required to be accurate and clear in their communications about services and prices,” Cass-Gottlieb said. “Failure to do so risks serious breach of the Australian Consumer Law.”
Microsoft Australia is a wholly owned subsidiary of Microsoft Corporation. The ACCC alleges the U.S. parent company prepared and published the communications to Australian subscribers, while Microsoft Australia adopted those communications as the seller of Microsoft 365 subscriptions to Australian consumers.
Competition, consumer protection and fair trading issues in the digital economy represent a current ACCC compliance and enforcement priority.
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