Microsoft is facing Federal Court action after the Australian Competition and Consumer Commission (ACCC) accused the tech giant of misleading around 2.7 million Australian Microsoft 365 users over subscription options and price increases tied to its AI assistant Copilot.

According to the ACCC, since October 2024 Microsoft informed customers on auto-renewing Personal and Family 365 plans that they must accept Copilot integration, along with the accompanying price hike, or cancel their subscription altogether.

However, the regulator claims Microsoft failed to disclose the third option of ‘Classic’ plans, which retained all existing features without Copilot at the original lower price.

The Classic plans, the ACCC claims, were hidden deep within the cancellation process, appearing only after a user began to terminate their subscription.

Microsoft’s emails and blog posts announcing the price changes made no mention of the cheaper option.

“Following a detailed investigation, we will allege in Court that Microsoft deliberately omitted reference to the Classic plans and concealed their existence until after subscribers initiated the cancellation process,” ACCC Chair Gina Cass-Gottlieb said.

“We’re concerned Microsoft denied its customers the opportunity to make informed decisions.”

After the Copilot rollout, annual prices for Microsoft 365 Personal jumped 45%, from $109 to $159, while Family plans rose 29%, from $139 to $179.

The regulator argues that many consumers, who were unaware of the Classic option, were automatically renewed at the higher rate.

The ACCC’s case follows consumer complaints and online discussions about the matter. Several customers filed complaints with the ACCC, triggering the investigation.

Many users criticised the automatic AI integration, saying it wasn’t clear they could opt out and stay on the cheaper Classic subscription.

One user wrote, “The arrogance of Microsoft is astounding,” while others complained about losing features like Publisher in exchange for Copilot.

The backlash has not been limited to Australia.

In the UK, the Science, Innovation and Technology Committee questioned Microsoft over the price increase and why customers had to opt out of Copilot rather than opting in.

The case alleges both Microsoft Australia and its US parent company are liable for the misleading communications sent to local customers.

The watchdog is seeking penalties, injunctions, declarations, consumer redress and costs.

Under Australian Consumer Law, corporations can face fines of up to $50 million per breach, or 30% of adjusted turnover if the benefit gained can’t be quantified.

The case applies only to Microsoft 365 Personal and Family plans for home users, not business or enterprise customers.

Microsoft has yet to comment publicly on the ACCC’s allegations.