Microsoft's entry of Copilot into consumer Microsoft 365 subscriptions and the way that rollout was communicated to customers has escalated into a major legal showdown: the Australian Competition and Consumer Commission (ACCC) has commenced Federal Court proceedings alleging Microsoft misled roughly 2.7 million Australians about subscription options and a linked price rise, and is seeking significant penalties, consumer redress and injunctions.
Microsoft announced the broad consumer inclusion of Copilot into Microsoft 365 Personal and Family plans in late 2024 and early 2025, positioning the AI assistant as a productivity booster inside Word, Excel, PowerPoint, Outlook, OneNote and the Microsoft 365 Copilot app. The company said the move brought a new set of AI-driven features and a monthly allocation of AI credits for consumer accounts, while retaining other plan options for customers who did not want Copilot.
What has transformed product change into legal conflict is the communication and billing mechanics that accompanied Copilot’s integration. The ACCC alleges Microsoft informed auto-renewing subscribers that Copilot would be added and that the Personal and Family plans would renew at higher prices — unless the subscriber cancelled — but withheld information about an available third option: a “Classic” plan that preserved the original features and price without Copilot. The regulator says this misrepresentation effectively forced many customers to either accept a higher fee or go through a cancellation process to retain the prior price and feature set.
Microsoft’s public messaging emphasized the benefits of Copilot, promised controls to turn Copilot on or off inside apps, and said existing subscribers could move to other plans without Copilot — including a limited-time “Personal Classic” and “Family Classic” option. Microsoft has said it is reviewing the ACCC’s claims and reiterated that consumer trust and transparency are priorities.
Microsoft has defensible positions: the availability of Classic plans, in-app controls, and public communications about options give the company factual levers to contest the characterization that consumers were deliberately or unlawfully misled. However, the key questions for the court will be how the communications were worded, how obvious the Classic options were at the time of renewal, and whether the absence of that information in initial notices materially misled ordinary consumers.
For consumers, the practical impact is immediate: affected subscribers who prefer to avoid Copilot can and should check their Microsoft account settings and the documented steps to switch to a Classic or Basic plan, or contact Microsoft support if the option is not visible. For regulators and companies, the case underscores that AI-driven product changes bundled into subscription renewals must be accompanied by unusually clear communications and accessible opt-out pathways to withstand legal and public scrutiny.
This dispute will be an important test of how consumer law intersects with AI feature rollouts and subscription economics — and its outcome will shape the expectations regulators impose on the next generation of AI-enabled consumer products.
Source: thechronicle.com.ph Australian competition watchdog sues Microsoft for misleading consumers
Background
Microsoft announced the broad consumer inclusion of Copilot into Microsoft 365 Personal and Family plans in late 2024 and early 2025, positioning the AI assistant as a productivity booster inside Word, Excel, PowerPoint, Outlook, OneNote and the Microsoft 365 Copilot app. The company said the move brought a new set of AI-driven features and a monthly allocation of AI credits for consumer accounts, while retaining other plan options for customers who did not want Copilot.What has transformed product change into legal conflict is the communication and billing mechanics that accompanied Copilot’s integration. The ACCC alleges Microsoft informed auto-renewing subscribers that Copilot would be added and that the Personal and Family plans would renew at higher prices — unless the subscriber cancelled — but withheld information about an available third option: a “Classic” plan that preserved the original features and price without Copilot. The regulator says this misrepresentation effectively forced many customers to either accept a higher fee or go through a cancellation process to retain the prior price and feature set.
Microsoft’s public messaging emphasized the benefits of Copilot, promised controls to turn Copilot on or off inside apps, and said existing subscribers could move to other plans without Copilot — including a limited-time “Personal Classic” and “Family Classic” option. Microsoft has said it is reviewing the ACCC’s claims and reiterated that consumer trust and transparency are priorities.
Timeline: Copilot rollout, price changes and the ACCC case
Key dates and pricing shifts
- Copilot was added to Microsoft 365 Personal and Family for consumers during a staged rollout that began with pilots in October 2024 and broadened to most markets in January 2025.
- The ACCC’s complaint identifies 31 October 2024 as the effective integration date for Australia (the date Microsoft began notifying auto-renewing customers about Copilot integration and upcoming price changes).
- Following Copilot’s integration, Microsoft increased the annual price for Microsoft 365 Personal in Australia from A$109 to A$159 (a 45% rise) and the Family plan from A$139 to A$179 (a 29% rise).
- The ACCC filed proceedings in the Federal Court on 27 October 2025, naming both Microsoft Australia and parent company Microsoft Corporation.
What communications are at the center of the ACCC’s claim
The regulator’s action focuses on two emails Microsoft sent to existing subscribers and a blog post the company published to explain Copilot’s inclusion and pricing changes. The ACCC alleges those communications conveyed that customers had only two options — accept the new Copilot-integrated plan at the higher price or cancel — when a third alternative (the Classic plan) was available but not disclosed.What the ACCC alleges — and what it is seeking
The ACCC’s case advances a straightforward legal theory under Australian Consumer Law: that Microsoft’s communications were false or misleading because they omitted a material option that consumers reasonably would want to know about. The regulator says:- Approximately 2.7 million Australian consumers were affected by this omission.
- Microsoft’s two emails to subscribers and the blog post were likely to mislead by conveying there was no alternative to the Copilot-integrated plans other than cancellation.
- The conduct deprived consumers of the chance to make a properly informed choice and may have caused economic harm through renewals at higher prices.
- Pecuniary penalties (the law allows penalties up to A$50 million, or potentially three times the benefit obtained, or up to 30% of adjusted turnover in relevant circumstances).
- Declarations that Microsoft contravened consumer protection provisions.
- Injunctions and compliance orders to prevent repetition.
- Consumer redress, including compensation for affected Microsoft 365 Personal and Family subscribers.
- Recovery of legal costs.
Microsoft’s position and product design choices
Microsoft has publicly stated it is reviewing the ACCC’s claims and emphasised commitment to transparency and regulatory compliance. The company’s consumer messaging around Copilot highlighted a few important product and policy choices:- Copilot in Microsoft 365 would be accompanied by a monthly allocation of AI credits sufficient for typical users, with options to upgrade for heavy users via Copilot Pro.
- Microsoft stated it would offer controls inside apps (for example, settings in Word, Excel and PowerPoint) to enable or disable Copilot where AI assistance is not desired.
- For existing subscribers on recurring billing, Microsoft said customers could switch to alternative plans such as Microsoft 365 Basic or, for a limited time, to Microsoft 365 Personal Classic and Microsoft 365 Family Classic plans to avoid Copilot while retaining prior pricing.
- Microsoft also stated that prompts, responses and the content of files used with Copilot in Microsoft 365 apps would not be used to train the company’s foundational AI models, citing privacy commitments.
Practical guidance for consumers (what you can do now)
If you are an affected Microsoft 365 Personal or Family subscriber and are unsure where you stand, these are practical, documented steps customers can follow to check and change their subscription:- Sign in to your Microsoft account and go to Services & Subscriptions (account.microsoft.com).
- Locate the Microsoft 365 subscription, select Manage > Cancel subscription.
- When prompted, look for an option to downgrade to Microsoft 365 Personal Classic or Microsoft 365 Family Classic, or select another non-Copilot plan (for example, Microsoft 365 Basic).
- Follow the on-screen steps; your existing subscription will remain active until its renewal date, at which point the selected plan will apply and (if applicable) different pricing will take effect.
Legal and regulatory analysis: why this matters beyond price tags
This case is significant for several reasons that reach beyond Microsoft and Australia.1. Consumer-subscription law is catching up to AI product launches
The ACCC’s central concern is not that Microsoft added new features or changed prices — regulators accept companies will update products and pricing — but that customers were deprived of a clear, transparent presentation of their choices. Subscription models with auto-renewal place a higher duty on firms to make alternatives plain and to avoid burying opt-out or legacy-plan options in fine print or cancellation funnels.2. Precedent and regulatory appetite
Australia’s consumer watchdog has pursued major technology firms before for misleading conduct in the digital context, most notably bringing and winning actions over representations about location data collection. Those precedents demonstrate the regulator’s willingness to litigate against large, global tech companies and to seek significant penalties where court findings of misleading conduct are made. A successful outcome for the ACCC here would reinforce that digital-platform communications — including subscription change notices — are subject to careful scrutiny under consumer protection law.3. Financial exposure and reputational risk for subscription models
Monetary penalties are one dimension, but reputational fallout and operational impacts can be more sustained. Large fines attract headlines; mandatory remedial orders can force process and interface redesigns; and a court-ordered consumer redress program could be expensive and operationally painful to administer, depending on the scope of affected subscribers and the remedies required.4. Global regulatory ripple effects
Although this dispute arises in Australia, regulatory authorities in other jurisdictions track strategic litigation by peers. If the Federal Court finds Microsoft’s communications misleading, other regulators — particularly those focused on consumer protection and digital markets — may replicate scrutiny of how companies communicate price and feature changes when integrating AI features into subscription products.Risks for Microsoft and for other subscription businesses
- Legal liability: If the court validates the ACCC’s allegations, Microsoft could face sizable penalties under the monetary maxima available in Australian law, plus ordered redress to consumers and structural or disclosure remedies.
- Operational disruption: Being required to alter renewal communications or subscription flows would complicate product roadmaps and could slow future rollouts of monetised AI features.
- Customer trust erosion: Surveys and forum commentary already show consumer anger following price hikes; litigation that concludes Microsoft misled customers risks longer-term brand damage and higher churn.
- Precedent for regulators: A strong result for the ACCC would embolden regulators worldwide to scrutinize the interface design, defaults and communication channels companies use to push consumers toward higher-priced tiers with AI features.
- Compliance costs: Firms may need to redesign communications and legal disclosures, invest in clearer UI/UX for subscription management, and bolster compliance and legal teams to manage cross-jurisdictional obligations.
What Microsoft will likely argue in court
Microsoft’s defense avenues are predictable and rooted in the product choices it publicised:- Availability of Classic plans: Microsoft will point to its published support content and in-product options that allowed subscribers to switch to Classic plans or other non-Copilot options, arguing that customers were not deprived of alternatives.
- Reasonableness of communications: Microsoft may argue its emails and blog post were factually correct in context, emphasised the benefits of Copilot, and provided sufficient notice of options — that any confusion was not deliberate but a communication design or timing issue.
- Technical and practical limitations: Microsoft could contend that not all customers would have been eligible for Classic plans due to purchase channel or region-specific constraints; this could be used to explain why some users saw different account management experiences.
- Policy and privacy safeguards: Microsoft will emphasise controls allowing Copilot to be disabled in apps and commitments not to train models on user prompts in Microsoft 365; while these points do not directly answer the disclosure allegation, they frame the product as flexible and privacy-conscious.
Broader implications for AI product launches and subscription transparency
The Microsoft-Copilot litigation crystallises several broader lessons for companies that integrate AI into widely used consumer subscriptions:- Don’t hide legacy-plan alternatives in cancellation paths. Regulators are scrutinising whether companies deliberately route users into a renewal or upgrade funnel without a clear, upfront presentation of alternatives.
- Clarity beats legal fine-tuning. Even when companies believe legal obligations are satisfied, user-facing clarity reduces disputes and reputational blowback. Transparent emails, plain-language choices during renewal, and explicit in-account toggles are practical, defensive measures.
- Design choices are regulatory flashpoints. How defaults are set (opt-in vs opt-out), where options appear (initial notification vs cancellation flow), and how renewal prices are described can trigger consumer-law exposure independent of whether the price itself is reasonable.
- Document retention matters. The ACCC’s case relies heavily on the two subscriber emails and the blog post Microsoft published; firms should audit how those messages will be interpreted by regulators and consumers and preserve contemporaneous records of communication choices and testing.
What to watch next
- The Federal Court timetable: Litigation paths in consumer-protection matters can be lengthy. Expect preliminary filings, possible mediation or negotiation, and a trial calendar that could extend for many months.
- Scope of redress and class of affected consumers: The precise universe of affected subscriptions (2.7 million as alleged by the ACCC) and how redress would be calculated will be central to the damages and remedy phase if liability is found.
- Regulatory interplay: Other consumer-protection or data-privacy authorities may monitor the outcome for cues on enforcement posture around AI product launches and subscription disclosures.
- Product and comms changes: Microsoft may proactively update its communications and account-management flows to minimise regulatory risk and restore consumer confidence while the case proceeds.
Final assessment — strength of the ACCC case and the implications for consumers
The ACCC’s case is legally plausible and rests on classic consumer-law principles: businesses must not mislead or omit material facts that would affect a consumer’s choice. The regulator’s allegation that Microsoft failed to disclose a clearly available Classic-plan option — and that the omission influenced subscription renewals — is an actionable claim under Australian Consumer Law.Microsoft has defensible positions: the availability of Classic plans, in-app controls, and public communications about options give the company factual levers to contest the characterization that consumers were deliberately or unlawfully misled. However, the key questions for the court will be how the communications were worded, how obvious the Classic options were at the time of renewal, and whether the absence of that information in initial notices materially misled ordinary consumers.
For consumers, the practical impact is immediate: affected subscribers who prefer to avoid Copilot can and should check their Microsoft account settings and the documented steps to switch to a Classic or Basic plan, or contact Microsoft support if the option is not visible. For regulators and companies, the case underscores that AI-driven product changes bundled into subscription renewals must be accompanied by unusually clear communications and accessible opt-out pathways to withstand legal and public scrutiny.
This dispute will be an important test of how consumer law intersects with AI feature rollouts and subscription economics — and its outcome will shape the expectations regulators impose on the next generation of AI-enabled consumer products.
Source: thechronicle.com.ph Australian competition watchdog sues Microsoft for misleading consumers
