Microsoft Sued in Australia Over AI Subscription Pricing
Competition watchdog alleges Microsoft misled 2.7 million customers by concealing cheaper, non-AI plans for its flagship Microsoft 365 software suite.
Microsoft is facing legal action in Australia after the country’s competition regulator filed a lawsuit alleging the technology giant engaged in misleading conduct to push millions of customers onto more expensive subscriptions featuring its Copilot AI assistant.
The Australian Competition and Consumer Commission (ACCC) initiated proceedings in the Federal Court, claiming Microsoft failed to inform 2.7 million subscribers to its Microsoft 365 Personal and Family plans that it was possible to retain their existing subscriptions at a lower price without the new AI features. The move represents a new front in the growing global regulatory scrutiny facing the world's largest technology companies over their pricing power and product bundling strategies.
Shares of Microsoft were largely untroubled by the news, rising less than 1% to $523.61 in morning trading, suggesting investors may be viewing the immediate financial risk from the Australian lawsuit as limited for the nearly $3.9 trillion company. However, the case strikes at the heart of Microsoft's strategy to monetize artificial intelligence by integrating it across its dominant software portfolio.
According to the ACCC, Microsoft began notifying customers with auto-renewing subscriptions from October 2024 that their plans would include Copilot, resulting in significant price hikes. The annual cost for a Microsoft 365 Personal plan rose by 45% from A$109 to A$159, while the Family plan increased by 29%.
The regulator alleges that Microsoft’s communications created a false impression that customers had only two choices: accept the higher-priced, AI-integrated plan or cancel their subscription entirely. A third option—to switch to a cheaper "Classic" plan that excluded Copilot—was allegedly hidden from view and only became apparent when a user initiated the cancellation process.
“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,” ACCC Chair Gina Cass-Gottlieb said in a statement. “We’re concerned that Microsoft’s communications denied its customers the opportunity to make informed decisions about their subscription options.”
The lawsuit is the latest in a series of regulatory challenges for Microsoft. The company is facing an antitrust investigation from the U.S. Federal Trade Commission over its cloud computing and AI partnerships. In Europe, regulators have forced Microsoft to unbundle its Teams communication app from its Office suite following a competition probe. Similarly, the UK’s Competition and Markets Authority is examining the cloud computing sector, a market where Microsoft's Azure is a dominant player.
While the direct penalties in Australia may be modest relative to Microsoft’s global revenue, the case could set a significant precedent. Regulators worldwide are closely watching how companies introduce and price AI functionalities, with a focus on ensuring consumer choice and preventing anti-competitive bundling.
The ACCC is seeking penalties, injunctions, and consumer redress. Under Australian law, the maximum penalty per breach can be substantial, calculated as the greater of A$50 million, three times the benefit obtained from the conduct, or 30% of the company's turnover during the period of the breach.
“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 added.
Microsoft has not yet issued a public response to the ACCC’s allegations. The case highlights the tension between innovation and regulation as tech giants race to deploy and profit from generative AI, an area that is central to Microsoft's future growth and a key focus for investors.