Microsoft Faces Lawsuit in Australia Over Copilot Subscription Misleading

Australia’s competition regulator, the Australian Competition and Consumer Commission (ACCC), has initiated legal action against Microsoft and its Australian subsidiary. The lawsuit alleges that Microsoft misled approximately 2.7 million customers regarding their Microsoft 365 Personal and Family subscription options when it integrated the Copilot AI feature. This case raises significant concerns about transparency in AI technology, especially as enterprise customers begin to demand clearer terms in contracts.

According to the ACCC, Microsoft engaged in deceptive practices beginning on October 31, 2024. The company reportedly informed subscribers with auto-renewal enabled that they had two choices: accept the integration of Copilot with a price increase of up to 45% or cancel their subscription. The ACCC claims Microsoft concealed a third option, which would have allowed customers to retain existing features at previous prices.

“The ACCC alleges that since October 31, 2024, Microsoft has told subscribers of Microsoft 365 Personal and Family plans with auto-renewal that to maintain their subscription they must accept the integration of Copilot and pay higher prices, or alternatively, cancel their subscription,” stated Gina Cass-Gottlieb, Chair of the ACCC. “This information provided to subscribers was false or misleading.”

The case centers on two emails and a blog post that Microsoft allegedly sent to subscribers about the Copilot integration. Notably, the annual subscription prices for Microsoft 365 Personal increased from $71 to $103 (A$109 to A$159), and Family plans rose from $90 to $116 (A$139 to A$179). The ACCC’s filings indicate that Microsoft did not mention the existence of Microsoft 365 Classic plans, which would have allowed users to keep their current features without the added costs of Copilot.

Cass-Gottlieb emphasized the importance of Microsoft Office applications in daily life, highlighting that many users may not take the decision to cancel their subscriptions lightly. “Given there are limited substitutes to the bundled package, canceling the subscription is a decision many would not make lightly,” she noted.

This lawsuit not only targets consumer subscriptions but also signals broader implications for enterprise procurement. Technology leaders are increasingly incorporating “AI transparency clauses” into renewal contracts to protect against unanticipated price increases stemming from automation features. According to Sanchit Vir Gogia, chief analyst and CEO at Greyhound Research, Microsoft’s bundling strategy aligns with a wider industry trend.

“Customers rarely buy AI as an isolated feature, so vendors are turning it into part of the core suite,” Gogia explained. He pointed out that while integrating Copilot into applications like Word, Excel, and Outlook may enhance user engagement, it also poses transparency risks that extend beyond consumer markets.

When a feature becomes default rather than a choice, the distinction between added value and forced adoption can become unclear. Gogia remarked that businesses are now writing clauses into contracts to maintain visibility over costs associated with AI. “Bundled AI removes that visibility,” he said. “Vendors that trade clarity for faster uptake may gain short-term revenue but risk long-term erosion of customer confidence.”

The ACCC is seeking penalties, injunctions, and consumer redress. Under Australian Consumer Law, the maximum penalty for each breach could be the greater of $33 million (A$50 million), three times the total benefits obtained from the conduct, or 30% of Microsoft’s adjusted turnover during the breach period if benefits cannot be determined.

Gogia suggested that the outcome of this case could have global implications for AI transparency. “If the Australian court rules that Microsoft misled users, the ripple effect will be immediate,” he stated. “Global vendors would have to redesign renewal communications to show exactly what portion of a subscription relates to AI, what data it uses, and how customers can opt out.”

As the case unfolds, it highlights the increasingly complex relationship between technology providers and consumers in the rapidly evolving landscape of AI integration. Existing Microsoft 365 Personal and Family subscribers who have not renewed since July 8 may still access the Classic plans by initiating the cancellation process, according to the ACCC.