Australia Sues Microsoft for Allegedly Misleading 2.7 Million Users Over AI-Powered Microsoft 365 Plans

Australia’s competition regulator has filed a lawsuit against Microsoft Corp., accusing the U.S. technology giant of misleading millions of customers into paying inflated subscription prices after bundling its Copilot artificial intelligence tool with Microsoft 365.

In the complaint lodged on Monday, the Australian Competition and Consumer Commission (ACCC) alleged that since October 2024, Microsoft misled around 2.7 million customers by implying that they needed to upgrade to higher-priced Microsoft 365 personal and family plans that included Copilot, despite the continued availability of cheaper “classic” plans without the AI integration.

Following the Copilot rollout, the Microsoft 365 Personal plan price rose 45% to A$159 ($103.32) annually, while the Family plan increased 29% to A$179, the ACCC said. The regulator argued that Microsoft failed to clearly disclose that subscribers could retain the lower-priced option, only revealing it after users initiated the cancellation process.

“This design choice created a false impression of available options,” the ACCC said, adding that Microsoft’s behavior breached Australian consumer law by omitting key information and potentially manipulating customer decisions through opaque communication practices.

The watchdog said Microsoft’s earlier emails and blog posts merely notified customers of the new pricing, without explicitly mentioning the availability of cheaper alternatives.

Consumers were misled into believing that the AI-inclusive plans were the only ones available, the ACCC said.

A Microsoft spokesperson said in an emailed statement that the company was reviewing the ACCC’s claims in detail, but did not provide additional comments on pricing or product design.

The ACCC is seeking penalties, consumer redress, injunctions, and costs from both Microsoft Australia Pty Ltd and its U.S. parent company, Microsoft Corp. Under Australian consumer law, the maximum penalty for each breach is the greater of A$50 million, three times the benefit obtained, or 30% of the company’s adjusted turnover during the period of the breach, if the benefit value cannot be determined.

“Any penalty that might apply to this conduct is a matter for the Court to determine,” the ACCC said, noting that the final amount would depend on the findings of the Federal Court.

Weighing the Implications

The Australian case marks another test of Microsoft’s AI monetization strategy, which has been instrumental in boosting software revenues since early 2024. The company has said that AI enhancements justify the higher subscription costs, as they improve productivity and automate complex workflows.

However, analysts say the ACCC case could lead to closer examination of Microsoft’s consumer disclosures and pricing tactics in other markets, especially as AI services become default features across its products.

If the court rules in favor of the ACCC, Microsoft could face substantial financial penalties and be forced to revise its subscription practices in Australia — a move that could ripple through its global pricing model.

The lawsuit may extend beyond a legal skirmish and could have strategic implications for the company’s global AI rollout, particularly as it increasingly integrates Copilot across its product suite.

Microsoft’s Copilot represents a cornerstone of its next growth phase — a way to turn its decades-old software franchises like Office, Windows, and Azure into recurring AI-powered revenue streams. The firm has invested heavily in embedding generative AI capabilities, with Copilot now available in Microsoft 365, GitHub, and Windows 11, and plans are underway to extend it to Edge and Outlook for consumers.

However, the ACCC’s case may pressure Microsoft to re-examine its pricing and disclosure practices, especially in markets with strong consumer protection frameworks such as the European Union, the United Kingdom, and Canada. These jurisdictions have increasingly tightened rules on “dark patterns”, manipulative design techniques that nudge users toward more expensive subscriptions, which are at the core of the Australian regulator’s allegations.

Analysts suggest that if the court rules against Microsoft, it could set a precedent that compels the company to separate AI features like Copilot into more transparent, optional add-ons, rather than automatically bundling them into higher-priced plans. Such a shift could slow the company’s near-term revenue growth from AI subscriptions, although it might also restore consumer trust and regulatory goodwill in key international markets.

On the investor side, the lawsuit is unlikely to cause immediate financial strain for a company with over $80 billion in annual net income, but it introduces headline risk that could weigh on sentiment. Microsoft shares have climbed more than 35% this year, buoyed by investor optimism about its AI leadership, but regulatory pushback — if it spreads — may temper expectations about how quickly AI integrations can be monetized.

Still, most analysts view the dispute as a short-term operational challenge rather than a strategic derailment.