Australia Sues Microsoft Over Hidden AI Pricing, Alleges 2.7 Million Customers Misled

Listen to This Article

Competition watchdog accuses tech giant of concealing cheaper subscription options when bundling Copilot AI, leading to steep price increases for Microsoft 365 users.

Australia's competition watchdog has launched legal proceedings against Microsoft Corporation, accusing the tech giant of misleading approximately 2.7 million customers over subscription pricing changes linked to the integration of its artificial intelligence assistant, Copilot.

The Australian Competition and Consumer Commission (ACCC) filed the case in Federal Court on Monday, alleging that Microsoft deliberately concealed cheaper subscription options when bundling Copilot into its Microsoft 365 personal and family plans starting in October 2024.

Hidden Alternative Plans

According to the ACCC, Microsoft informed subscribers with auto-renewal that they had only two choices: accept the Copilot integration and pay significantly higher prices, or cancel their subscriptions entirely. The regulator claims the company failed to disclose a third option—"Classic" plans that maintained existing features without Copilot at the original lower prices.

"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.

The Classic plan option was only revealed when customers began the cancellation process, the regulator claims, effectively denying consumers the ability to make informed decisions about their subscriptions.

Steep Price Increases

The price hikes were substantial. Microsoft's annual subscription for the Personal plan surged 45% to A$159 (approximately $103), while the Family plan increased 29% to A$179. The ACCC alleges that Microsoft's communications through emails and blog posts failed to mention the cheaper alternative, only informing customers about upcoming price increases at their next auto-renewal.

"We're concerned that Microsoft's communications denied its customers the opportunity to make informed decisions about their subscription options, which included the possibility of retaining all the features of their existing plan without Copilot and at the lower price," Cass-Gottlieb added.

Violation of Consumer Law

In its submission, the ACCC contends that Microsoft engaged in conduct against Australian consumer law by failing to disclose material facts and engendering a false impression about available choices. The regulator is seeking penalties, consumer redress, injunctions, and costs from both Microsoft Australia and its U.S. parent company.

Under Australian consumer law, businesses may be fined up to A$50 million for each breach, three times the benefits obtained that were reasonably attributable to the breach, or 30% of adjusted turnover if the benefit cannot be quantified.

"Any penalty that might apply to this conduct is a matter for the Court to determine," the regulator said.

Microsoft's Response

In a statement to The Register, Microsoft said it was reviewing the allegations and remained committed to working with regulators.

"Consumer trust and transparency are top priorities for Microsoft, and we are reviewing the ACCC's claim in detail," the company told the Register. "We remain committed to working constructively with the regulator and ensuring our practices meet all legal and ethical standards."

While the lawsuit is unlikely to significantly impact Microsoft's global earnings, legal experts suggest the proceedings could establish important precedents for how large technology firms disclose pricing changes and product modifications, particularly when bundling AI features into existing services.

The Federal Court proceedings are ongoing, and Microsoft has not indicated whether it will contest the allegations or seek a settlement with the regulator.