Australia Sues Microsoft Over Copilot Bundling in 365 Subscriptions

Microsoft’s Australian legal challenge is the sharpest enforcement test yet of how tech giants bundle artificial intelligence into subscription services and communicate price changes to consumers, with the Australian Competition and Consumer Commission (ACCC) alleging that Microsoft misled roughly 2.7 million Australian Microsoft 365 Personal and Family subscribers by obscuring a lower‑priced, non‑AI “Classic” option while rolling Copilot into its consumer plans.

Background​

Microsoft began positioning Copilot — its generative‑AI assistant for consumers — as a flagship enhancement to Microsoft 365 in 2023, with staged consumer rollouts that culminated in Copilot being integrated into Microsoft 365 Personal and Family plans in Australia on 31 October 2024. In early 2025 the company announced broader consumer price and packaging changes tied to that integration. The ACCC’s Federal Court action, filed 27 October 2025, alleges those product changes were communicated to subscribers in a way that created a materially incomplete choice at renewal.
The headline figures driving the regulator’s case are stark: the ACCC says the annual Microsoft 365 Personal price rose from A$109 to A$159 (≈ +45%) and the Family plan increased from A$139 to A$179 (≈ +29%) after Copilot was bundled into the consumer SKUs. The regulator quantifies the potentially affected pool at approximately 2.7 million Australian accounts — the population at the heart of the alleged harm. These are the facts the ACCC places front and centre in its initiating materials.

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What the ACCC is alleging​

The core allegation in plain language​

The ACCC’s complaint rests on a relatively simple legal theory: Microsoft’s communications to subscribers with automatic renewal enabled — specifically two targeted emails and a public Microsoft blog post — conveyed a binary choice that omitted a contemporaneous third option. According to the regulator, Microsoft told affected customers they could either accept Copilot and the higher renewal price or cancel their subscription; the ACCC alleges Microsoft failed to disclose that a lower‑cost “Microsoft 365 Personal Classic” or “Microsoft 365 Family Classic” plan (retaining pre‑Copilot features and price) was available at the same time. The Classic options, the regulator says, were only surfaced after a consumer began the cancellation flow.

Evidence and procedural posture​

The ACCC published a concise statement and attached screenshots to its initiating court documents showing where the Classic option appears in Microsoft’s account flows, which the regulator says proves that discoverability was restricted to the cancellation path. The ACCC is seeking declarations, injunctions, consumer redress and civil penalties, and it flags the statutory penalty framework under the Australian Consumer Law — the greater of A$50 million, three times any benefit obtained, or 30% of adjusted turnover for the relevant period — as the ceiling for potential fines. The ACCC characterises the conduct as an information omission that materially altered consumer choice at renewal.

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Microsoft’s likely defence and the public record​

Microsoft has publicly stated it is reviewing the ACCC’s claims. The company’s published product pages and support documentation describe the Copilot rollout, the AI credit model and the availability of non‑Copilot product options, including references to “Classic” SKUs when those were announced. Those public materials form the nucleus of Microsoft’s expected defence: that alternatives were disclosed in product notices and support pages, and that the company provided mechanisms for customers to remain on non‑Copilot offerings. Microsoft’s position, as reflected in early media reporting, emphasises that it will contest the regulator’s view that information was withheld or that communication was misleading.
That factual gap — published documentation vs. the real‑world renewal experience of millions of auto‑renewing subscribers — is precisely where the Federal Court will focus. The ACCC will seek internal materials, analytics and UX telemetry to show how the rollout was conducted and what information was practically available to customers at the moment they were asked to renew. Microsoft is expected to mount a rigorous defence relying on the company’s public disclosures and product pages.

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Why this matters: consumer law, UX and the AI subscription era​

Omission as a legal lever​

Under Australian Consumer Law, a misrepresentation can arise not only from an explicit false statement but also from an omission of material information when that omission would be likely to mislead a reasonable consumer. The ACCC’s claim leverages that doctrine: when changing the price and composition of a widely used subscription, the regulator says companies must present all material options in a way that a reasonable consumer can discover them at the point of decision. The ACCC frames Microsoft’s messaging as an omission that created a false or incomplete impression about available choices.

Choice architecture and “nudges”​

Product teams design account flows and renewal messaging with behavioral economics in mind. Defaults, where options appear, and how those options are worded all influence user choice. The ACCC’s complaint anchors on what regulators call choice architecture — the design of decision environments that can either preserve, or subvert, consumer autonomy. When an option that keeps a prior price exists but is only shown after a user initiates cancellation, regulators view that as a potential nudge toward the more expensive option. This is why the case is being treated as a bellwether: it tests whether rapidly‑deployed AI upgrades can be monetised inside subscription ecosystems without contemporaneous, easily discoverable opt‑outs for consumers.

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Strengths of the ACCC’s case​

• Documentary evidence: The ACCC has lodged screenshots and a concise statement containing explicit captures of the account flow showing where the Classic option was surfaced. Those contemporaneous screenshots are potent pieces of evidence in an omission case and will be central in interlocutory skirmishes over what ordinary consumers actually saw.
• Scale and clarity of numbers: The price movements and affected cohort (A$109 → A$159 for Personal; A$139 → A$179 for Family; ~2.7 million subscribers) are precise, headline‑friendly figures that illustrate potential consumer harm and make the regulatory claim both tangible and politically salient. Those numbers are unambiguous in the ACCC’s materials and in independent reporting.
• Regulatory appetite and precedent: Consumer agencies globally have sharpened scrutiny of subscription practices and AI monetisation models. Australia’s action follows increased regulator attention to how digital platforms bundle services, and the ACCC’s authoritative standing will give weight to discovery requests and evidentiary demands.

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Weaknesses and legal risks for the ACCC​

• Public disclosures by Microsoft: Microsoft published blog posts, support pages and product announcements that describe Copilot and reference alternatives; these public materials could undercut the ACCC’s omission narrative if the Court views them as reasonably accessible notice to consumers. Microsoft will argue that the necessary information was publicly available and that customers could reasonably discover options without resorting to the cancellation flow.
• Proof of causation and actual loss: The ACCC must show that customers actually relied on the allegedly misleading communications and that measurable consumer losses resulted. Proving that a material percentage of the 2.7 million either remained on higher‑priced plans because they were unaware of Classic options — or otherwise suffered economic loss — will require granular billing data and sampling of user journeys, increasing evidentiary complexity.
• The “reasonable consumer” standard: Australian courts apply a “reasonable consumer” test in many consumer‑law cases. Microsoft will contend that a reasonable consumer would consult public FAQs or account settings, or that the presence of published Classic SKUs removed any actionable omission. The outcome will hinge on how the Court interprets what is “reasonably discoverable” in a subscription renewal context.

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What remedies the ACCC is seeking — and what could happen​

The ACCC’s initiating materials ask for the full suite of remedies available under the Australian Consumer Law:

• declarations that Microsoft’s conduct was misleading or deceptive;
• injunctions preventing repeat conduct or requiring clearer disclosures;
• consumer redress (which could take the form of refunds or reimbursement of price differentials);
• civil penalties and costs.

The regulator spotlights the statutory benchmark for penalties: for corporations the maximum per contravention is the greater of A$50 million, three times the benefit obtained, or 30% of adjusted turnover during the breach period — the Court will determine any punitive amount based on its findings. Practical resolutions range from negotiated settlements with remediation programs and process changes to full trial and significant penalties if the Court finds deliberate and sustained misleading conduct.

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Broader industry implications​

For product teams and UX designers​

This litigation sends a clear message: when adding paid AI features to existing subscription products, companies must ensure that alternatives and opt‑outs are equally discoverable at the point of renewal. Companies will need to:

• Audit renewal notices and in‑app disclosures for completeness and visibility.
• Surface no‑AI/legacy alternatives in the same channels and with comparable prominence as the AI‑enabled options.
• Retain UX telemetry and decision‑flow logs to demonstrate that customers were presented with actionable choices.

Failure to do so risks regulatory enforcement, mandatory product changes and reputational damage across jurisdictions.

For regulators and lawmakers​

The ACCC’s action is likely to prompt other regulators to reassess how subscription UX and product packaging interact with consumer law. Expect heightened scrutiny of:

• whether AI feature rollouts constitute a “material change” requiring explicit consent at renewal;
• the fairness of nudging users toward bundled AI upgrades rather than offering opt‑in models; and
• how remedies for systemic subscription practices should be structured to deliver meaningful consumer redress.

For consumers​

The case underscores a practical truth: subscription inertia is real and can be exploited by design. Regulators are increasingly attuned to these dynamics and willing to litigate over them. For subscribers, the practical takeaway is to scrutinise renewal notices, keep copies of communications, and capture screenshots of account flows that may become evidence in regulatory actions or consumer‑led claims.

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Technical and product detail: how Copilot was packaged​

Microsoft positioned Copilot as a productivity AI layer across core consumer apps — Word, Excel, PowerPoint, Outlook and Designer — and introduced a monthly AI credits model intended to limit heavy usage and to differentiate casual from power users. For families, Copilot entitlements and credits were structured with a primary account owner receiving most of the AI allocation, which raised separate fairness questions for multi‑user plans. Microsoft also announced “temporary Classic SKUs” that were intended to preserve existing features and pricing for customers who preferred not to use Copilot. The ACCC’s complaint does not challenge the existence of Classic SKUs per se; it targets the contemporaneous visibility of those options in communications to auto‑renewing subscribers.
These packaging choices — credits, seat allocations, and tiered entitlements — complicate the consumer decision environment because they create subtle differences in perceived value (what each paying user actually receives) and therefore affect whether a consumer would rationally choose to stay on a plan with AI features. That complexity will be a contested area in expert evidence if the case proceeds.

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Litigation outlook and likely procedural milestones​

Legal experts expect the Federal Court to set an interlocutory timetable that includes:

• pleadings and particulars from both parties;
• discovery requests on internal decision‑making, UX wires, email lists and telemetry;
• affidavit evidence from product and marketing employees and UX designers;
• expert reports on reasonable consumer impressions and behavioral analytics; and
• potential mediation or settlement discussions ahead of trial.

The ACCC’s investigative playbook signals an aggressive discovery phase: regulators will seek internal email threads, A/B test results, click‑through metrics and rollout timelines to prove what consumers actually saw and when. Microsoft, in turn, will assert that public product pages and blog posts provided sufficient notice and will challenge the regulator to prove reliance and causation at scale.

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What subscribers and consumer advocates should do now​

• Keep records: save renewal emails, blog screenshots and account pages that show your subscription options.
• Check account settings: users who have not yet renewed since July 8, 2025, may still be able to revert to Classic options by initiating account changes — the ACCC notes some users can access the Classic plan via cancellation steps. This is a technically vexed pathway and may change based on product configuration or post‑litigation remedies.
• Seek redress through the ACCC if you believe you were misled: the regulator is pursuing consumer redress and will likely publish guidance on how affected consumers can claim.

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Critical assessment: strengths, risks and uncertainties​

This case is strategically significant for three reasons. First, it places UX design choices — not just overt marketing statements — squarely within the enforcement perimeter of consumer protection law. The ACCC’s reliance on screenshots and user‑flow evidence signals that regulators will treat design‑driven omissions as actionable.
Second, the factual record is mixed. Microsoft’s public documentation acknowledging Classic SKUs complicates the ACCC’s omission claim, while the screenshots the regulator supplied give it a concrete evidentiary edge. The litigation will hinge on whether the Court believes public product pages reasonably substitute for in‑flow disclosures at the moment of renewal.
Third, the remedy architecture is uncertain. If the ACCC prevails, remedies could range from mandatory disclosure protocols and consumer refunds to multi‑million‑dollar penalties. However, the ACCC must still prove materiality, reliance and economic harm at scale — a demanding evidentiary burden that creates room for settlement or a narrow judicial ruling that clarifies disclosure standards without imposing draconian penalties.
Caution: while the ACCC’s initiating documents are public and well documented, some claims reflecting consumer experiences in forums or anecdotal reports are harder to verify at scale; regulators often use such reports to identify patterns that they then corroborate with telemetry — but isolated forum complaints alone are insufficient proof. These kinds of user anecdotes should be treated as signal rather than determinative evidence until corroborated by account‑level data revealed in discovery.

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What to watch next​

• Microsoft’s formal defence: whether the company accepts factual assertions about discoverability, or frames the case as a dispute over the scope of reasonable disclosure.
• Discovery outcomes: whether internal UX test data and rollout analytics show an intentional design choice to surface Classic options only via cancellation.
• Regulatory ripple effects: whether other jurisdictions follow Australia’s lead in scrutinising AI bundling inside subscription products.
• Any early settlement: significant redress programs or process changes could resolve consumer complaints more rapidly than trial.

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Conclusion​

The ACCC’s action against Microsoft over how Copilot was bundled into Microsoft 365 is a high‑stakes test of modern subscription governance. It forces a legal reckoning about where the line is drawn between product innovation and consumer transparency when AI features are monetised inside everyday software. The case will not only determine liability for one set of renewal communications — it will shape how product teams, regulators and courts balance innovation, price, and the right to a clear, contemporaneous choice in the AI era.

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Source: Digital Watch Observatory Microsoft faces Australian lawsuit over hidden AI subscription option | Digital Watch Observatory