Australian ACCC Takes Microsoft to Court Over Copilot in Microsoft 365

Australia’s competition watchdog has taken Microsoft to the Federal Court, alleging the company misled roughly 2.7 million Microsoft 365 subscribers by bundling its Copilot generative‑AI assistant into Personal and Family plans while obscuring a cheaper, non‑AI “Classic” option and thereby steering customers toward higher renewal prices.

Background / Overview​

Microsoft integrated Copilot into consumer Microsoft 365 plans during late 2024 and early 2025; the ACCC’s complaint identifies 31 October 2024 as the date the Copilot changes became active for consumer Personal and Family subscriptions in Australia. The regulator says Microsoft told auto‑renewing customers by way of two targeted emails and a blog post that their subscriptions would renew at higher prices unless they cancelled—conveying, so the ACCC alleges, a binary “accept the higher fee or cancel” choice while failing to disclose a simultaneous, lower‑cost option called Microsoft 365 Personal Classic and Microsoft 365 Family Classic.
The headline numbers driving the complaint are straightforward and consequential: the ACCC says the annual Microsoft 365 Personal price rose from A$109 to A$159 (≈45%) and the Family plan rose from A$139 to A$179 (≈29%) after Copilot was bundled into the product. The regulator estimates approximately 2.7 million Australian accounts were affected.

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How the ACCC frames the misconduct​

The allegation in plain language​

The ACCC’s central legal theory is omission: that Microsoft’s communications created a materially misleading impression by omitting an important piece of information — the contemporaneous availability of Classic, non‑Copilot SKUs at the prior price — and that omission caused many consumers to pay materially higher renewal fees. The ACCC has published a concise statement and initiating court documents that include screenshots taken from Microsoft’s account cancellation flow showing the Classic option only appearing after a consumer had started to cancel. The regulator says this choice architecture was designed or configured in a way that nudged users toward the higher‑priced, Copilot‑enabled tier.

The legal hook: Australian Consumer Law​

Under the Australian Consumer Law (ACL), it is unlawful to engage in conduct that is false, misleading or deceptive, including creating a misleading impression by omission of material facts. The ACCC is seeking declarations, injunctions, orders for consumer redress and penalties. For corporations the maximum statutory penalty for each contravention is the greater of A$50 million, three times the value of any benefit obtained that is reasonably attributable to the conduct, or 30% of adjusted turnover during the breach period if the benefit cannot be determined—an exposure that can be very substantial in high‑value cases.

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Timeline and the factual bones of the dispute​

• 31 October 2024: ACCC says Copilot integration into Microsoft 365 Personal and Family plans took effect in Australia.
• January 2025: Copilot integration and associated pricing adjustments were rolled out more widely, with global communications and support pages updated.
• Sometime before renewals for auto‑renew customers: Microsoft sent two emails and published a blog post notifying subscribers that Copilot would be added and that higher renewal prices would apply. The ACCC’s case focuses on the wording and presentation of those specific communications.
• 27 October 2025: The ACCC commenced proceedings in the Federal Court against Microsoft Australia Pty Ltd and Microsoft Corporation.

These dates matter: the regulator’s framing depends on what a reasonable auto‑renewing subscriber would have understood at the time they received Microsoft’s notices that their subscription would renew at a higher price.

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What the ACCC says users experienced​

The ACCC drew on consumer complaints and online forum commentary in its investigation and included screenshots in its initiating documents showing the Classic plan option appearing only late in the cancellation flow. The regulator’s submission is that many subscribers faced a realistic choice set of two options—upgrade (accept Copilot and pay more) or cancel—because the lower‑cost Classic alternative was not contemporaneously disclosed in the renewal notices that mattered. That omission, the ACCC says, had both economic and informational harms: consumers paid more than they would have had they been informed of the Classic option, and they lost the ability to make an informed decision in the moment.

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Microsoft’s public position and immediate response​

Microsoft has told the media and the regulator it is reviewing the ACCC’s claim in detail and emphasises that consumer trust and transparency are top priorities. The company has previously published blog posts and support pages describing the Copilot rollout and identifying alternative plans — including references to non‑Copilot options such as Microsoft 365 Basic and the temporary Classic SKUs — and will likely point to those materials in its defence. Microsoft’s public statements since the ACCC action have framed the dispute as evidentiary: that alternatives were published and support pages described opt‑out routes, and that the factual question is how discoverable those routes were to auto‑renewing subscribers in practice.
It is important to distinguish the two factual strands in play: (1) whether Classic SKUs existed (Microsoft’s documentation confirms they did), and (2) whether the specific communications that the ACCC targets were sufficiently clear, prominent and contemporaneous to avoid misleading a reasonable auto‑renewing subscriber (the ACCC says they were not). The Court will resolve that factual and legal tension after discovery and cross‑examination.

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Why the regulator sees broader public harm​

The ACCC frames the alleged conduct as more than a narrow consumer complaint: Microsoft 365 is a near‑utility product for many households and small businesses, bundling Word, Excel, PowerPoint, Outlook and cloud storage. Canceling a core productivity subscription is materially disruptive for many consumers, so the regulator argues Microsoft’s design choice—if deliberate—leveraged the stickiness of the product to increase take‑up of the paid AI features. The ACCC also points to the scale of the alleged cohort—2.7 million Australian subscribers—as amplifying the public interest and the scale of potential remedies.

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The commercial backdrop: why Copilot matters to Microsoft​

Microsoft has aggressively monetised Copilot and adjacent AI services. The company has repositioned consumer and premium 365 plans to incorporate paid AI features, and in October 2025 launched Microsoft 365 Premium — a single higher‑tier package that bundles Copilot across apps with enhanced usage limits and security features — as part of a broader strategy to consolidate AI monetization into subscription products. Monetising Copilot at scale represents a meaningful revenue lever for Microsoft given the large base of consumer subscribers. These market moves provide the business rationale that makes the ACCC’s scrutiny commercially consequential.
That commercial backdrop is why the precise mechanics of opt‑out, opt‑in and notification matter: even modest percentages of uplift across millions of subscribers translate quickly into tens or hundreds of millions in annual recurring revenue. The precise financial uplift the ACCC attributes to the alleged behaviour will be a contested fact in court; the regulator can seek penalties tied to either statutory maxima or to a multiple of any benefit court‑found to have been obtained.

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Legal stakes and likely remedies​

• What the ACCC is seeking:
• Declarations that Microsoft engaged in misleading or deceptive conduct;
• Injunctions preventing future conduct of that kind;
• Orders for consumer redress, including refunds or compensation for affected subscribers;
• Pecuniary penalties and costs.
• Maximum penalties:
• For corporations, the maximum is the greater of A$50 million, three times a reasonably attributable benefit, or 30% of adjusted turnover during the breach period for each contravention. The Court will determine any penalty and may scale it depending on gravity, duration, and whether conduct was deliberate or reckless.
• Practical enforcement implications:
• Injunctions could require Microsoft to change communications templates and subscription UI flows in Australia.
• Orders for consumer redress could force refunds or credits to affected subscribers.
• The Court’s reasoning could be persuasive to regulators and litigators in other jurisdictions assessing similar AI bundling strategies.

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Product design, choice architecture, and the regulatory test​

What is ‘choice architecture’ in this context?​

At the heart of the ACCC’s case is how Microsoft presented options to customers. Choice architecture refers to the arrangement, presentation, and ordering of options that influence the decisions people make. Regulators are increasingly treating certain product design decisions—defaults, burying opt‑outs, or surfacing options only after a cancellation flow—as legally significant when they interact with price or material product changes.

Why this matters for product teams​

• Designers and product managers must align UX flows with legal and compliance obligations: a technically available option that is discoverable only through an unexpected or burdensome path is likely to attract scrutiny when a material price change is involved.
• Communications must be contemporaneous and clear: if a renewal notice invites a consumer to “accept or cancel” while a cheaper option exists but is not disclosed in that same notice, regulators will view that as a potentially material omission.
• Audit trails matter: timestamps of emails, screenshots of the flows customers would see, and server logs will be core evidence in court. The ACCC already attached screenshots to its initiating documents; discovery will widen that evidentiary record.

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International ripple effects — why other regulators and companies are watching​

This case is being watched globally as a bellwether for how competition and consumer authorities will police AI monetization inside subscription platforms. If the ACCC succeeds, the ruling could:

• Set a precedent requiring clearer, contemporaneous disclosure of alternative SKUs when AI features are bundled with price increases;
• Push companies to simplify opt‑out paths and make non‑AI alternatives more discoverable in primary renewal notices;
• Encourage similar enforcement actions in other jurisdictions where consumer protection agencies have already signalled interest in AI bundling and subscription defaults.

Regulators in Europe and North America have been increasingly attentive to subscription transparency; a decisive Australian ruling would add momentum to cross‑border regulatory coordination and to litigation risk for global platforms.

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Strengths of the ACCC’s case — why the regulator looks confident​

• Documentary evidence: The ACCC has attached screenshots from Microsoft’s own cancellation flow to its initiating documents, showing the Classic option appearing late in the UX. Those screenshots are the kind of contemporaneous evidence courts find persuasive.
• Clear, measurable economic harm: The complaint supplies headline numbers (A$109→A$159; A$139→A$179) and an affected cohort estimate (≈2.7M) that make the alleged harm quantifiable if even a fraction of the cohort paid the higher renewal price. That numeric framework provides the ACCC with a basis to seek meaningful penalties or consumer redress.
• Consumer complaints and forum evidence: The ACCC says consumer reports and social forum commentary were critical in identifying discoverability problems—real‑world experience evidence regulators increasingly rely upon to demonstrate practical harm.

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Weaknesses and risks for the ACCC’s theory​

• Public product documentation: Microsoft published blog posts and support pages describing the Copilot rollout and alternative plans. The company will point to these materials to argue it provided adequate notice and that customers could proactively switch away from Copilot if they preferred. The factual fight will therefore pivot on whether those publications were sufficiently prominent and timely in the specific renewal communications the ACCC targets.
• Heterogeneity of consumer experience: Not all customers saw the same flow or the same timing for renewal notices; Microsoft will likely show evidence of accounts where the Classic option was visible at an earlier stage or where alternative opt‑out routes were effective, creating a factual mosaic rather than a uniform pattern. Proving systemic, intentional concealment is legally harder than showing isolated UX inconsistencies.
• Burden of proving benefit: If the ACCC seeks penalties tied to “three times the benefit obtained,” it will need to quantify the value that Microsoft obtained as a result of the alleged omission—a complex exercise that Microsoft will fiercely contest. If the Court cannot readily quantify a benefit, penalty calculation shifts to the turnover‑based test (30% of adjusted turnover for the relevant period), which has its own evidentiary and legal complexities.

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Practical takeaways for consumers and IT buyers​

• Check your renewal date and SKU: Auto‑renewing subscribers should confirm which SKU they are on and whether the renewal will reflect Copilot inclusion or a Classic/Basic plan. The ACCC notes the Classic options were, at least in some instances, available for existing subscribers who wanted to avoid Copilot charges.
• Preserve records: Consumers who believe they were misled should keep emails, screenshots of account pages and timestamps—these are the evidentiary types regulators and courts rely on. The ACCC explicitly referenced consumer reports and screenshots in its initiating materials.
• Evaluate actual value: Heavy Copilot users may find the new AI features justify the uplift; light users may be better served by non‑AI Classic plans or competitors. Families should check how AI credits and entitlements are allocated across seats.

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Broader policy and product design implications​

This litigation highlights how consumer protection and UX design are converging:

• Legal teams must be embedded early in subscription product design so that communication, UX flows and legal compliance are aligned before price or feature changes go live.
• Product designers must treat discoverability and ease of opt‑out as compliance controls, not discretionary usability choices.
• Companies should build robust audit trails and user‑facing record keeping: regulators and private litigants will increasingly expect demonstrable proof that material alternatives were clearly and contemporaneously disclosed to users.

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Verification and caveats​

• The ACCC’s initiating documents, including its media release and concise statement, provide the primary record for the regulator’s allegations and the screenshots it intends to rely upon. Those documents were published by the ACCC on 27 October 2025 and form the backbone of the factual claims the regulator advances.
• Independent news organisations (Reuters, The Guardian and national trade press) have reported the case and corroborated the key public facts in the ACCC’s release, including the asserted cohort size (≈2.7M) and the headline price changes. These independent reports confirm the ACCC’s public record but do not resolve contested factual issues that will be determined in court.
• Microsoft’s own published product pages and blog posts confirm the existence of Classic SKUs and described opt‑out routes; the factual dispute centers on whether Microsoft’s targeted renewal communications provided sufficiently clear, contemporaneous disclosure. That is a matter the Federal Court will decide after the evidentiary process.
• Some widely circulated claims about Microsoft’s absolute subscriber counts and the dollar value of ARR uplift from Copilot upselling are commercially plausible but should be treated with caution unless backed by precise, contemporaneous company disclosures. Public investor reports showed Microsoft 365 consumer subscriber counts have increased over time, but exact subscriber totals and ARR attributions to Copilot require careful reconciliation with Microsoft’s filings and investor materials. For subscriber figures, Microsoft’s public filings and corporate reports should be treated as the primary source; some media outlets cite “over 80 million” Microsoft 365 consumer subscribers but earlier official reports listed different figures (for example, a 2023 figure commonly reported was 67 million). Readers should treat numerical claims about revenue uplift and ARR as estimates unless the company states them explicitly in earnings filings.

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What to expect next​

• Discovery: The Court will order discovery where Microsoft must produce internal documents and communications about the rollout, emails, and UX mockups. Those materials will be decisive in showing whether the presentation was deliberate, negligent or defensible.
• Early procedural skirmishes: Microsoft may seek to narrow issues by arguing that the ACCC’s reliance on consumer forum posts and screenshots shows only isolated experiences rather than systemic misconduct. The ACCC will press that screenshots in the concise statement demonstrate a consistent pattern.
• Potential remedies: Settlement remains possible, including injunctive undertakings, industry‑wide commitments or consumer redress schemes. If the Court reaches liability, pecuniary penalties and orders for consumer redress will follow based on statutory formulas and judicial discretion.

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Conclusion​

The ACCC’s action against Microsoft is a pivotal test of how consumer protection law applies when platform incumbents roll paid generative‑AI features into essential subscription products. The case does not merely contest one pricing decision; it asks whether product‑design choices that affect the discoverability of cheaper alternatives can amount to misleading conduct when communicated poorly at renewal moments. The Court’s answer will shape not only Microsoft’s compliance obligations in Australia, but also global norms for subscription transparency, UX design and the monetisation of AI.
The litigation will proceed through discovery, and the evidentiary record — internal emails, UX artifacts and customer experience traces — will determine whether the regulator has proved a systemic omission or whether Microsoft’s published documentation and disclosure practices suffice as a defence. Either outcome will send a clear signal to product teams and regulators worldwide about where the line will be drawn between assertive upselling and unlawful omission in an AI‑driven subscription economy.

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Source: The Tech Portal Microsoft faces Australian lawsuit over alleged Copilot pricing misconduct - The Tech Portal