ACCC sues Microsoft over a “hidden” cheaper plan tied to Copilot price hikes

The Australian competition regulator says Microsoft pushed millions of households toward pricier Microsoft 365 tiers by burying a lower-cost alternative. In a Federal Court filing, the ACCC alleges Microsoft framed renewals as “pay more with Copilot or cancel,” while a $109 “Classic” plan without AI remained available but largely undisclosed.

Microsoft’s notices went to about 2.7 million Australians on Personal and Family plans. After Copilot was folded in, the Personal tier rose 45% to A$159 per year; the Family plan jumped 29% to A$179. According to the regulator, a third path—keep Office at the old price, no Copilot—only appeared mid-way through the online cancellation flow.

What’s actually new

The case targets disclosure, not Microsoft’s right to raise prices or add features. Regulators say two emails to auto-renewing customers, plus an October 31, 2024 blog post, presented a false binary: accept the AI-bundled plan or cancel. None mentioned Classic. The ACCC argues that omitting a materially different option—same Office apps, lower price, no Copilot—misled consumers at the moment of renewal.

That distinction matters when the service is hard to leave. For many households, Word, Excel, Outlook, and OneDrive are default utilities. Switching is costly.

The evidence regulators will lean on

The watchdog’s case rests on those three communications and the structure of Microsoft’s account flow. Users had to open subscriptions, click “Cancel subscription,” and proceed through several steps before the Classic offer surfaced. That design, the ACCC says, deprived subscribers of clear, timely information about their real choices.

The investigation was sparked by consumer complaints and forum posts that flagged the buried option. The regulator is seeking penalties, injunctions, declarations, and consumer redress. Under Australian Consumer Law, fines can reach the greater of A$50 million per breach, three times the benefit obtained, or 30% of adjusted turnover during the breach period if the benefit can’t be calculated.

Microsoft’s public line so far is procedural. A spokesperson said the company is reviewing the claim and remains committed to transparency and compliance. No substantive rebuttal yet.

The essential-software problem

Microsoft has embedded Copilot across its product line, and bundling the tool with 365 accelerates adoption. It also turns AI into a default surcharge for existing subscribers. Regulators say that approach carries higher disclosure obligations when customers are effectively captive to a platform they use for work, school, and personal finance.

The ACCC’s framing is straightforward: technical availability is not the same as clear presentation. An option that exists only after clicking “cancel” doesn’t meaningfully inform a customer at renewal—especially if the email that triggers the decision never mentions it.

Consumer advocates see a familiar pattern. Subscribers often struggle to change or cancel digital services. Here, the complaint flips the usual script: the option to keep paying less sat behind the same maze where companies typically hide the way out.

How this could ripple beyond Australia

Two questions will set the tone. First, does burying a materially cheaper plan inside a cancellation sequence meet Australian law’s standard for accuracy and clarity? Second, if the court finds it does not, do overseas regulators treat that ruling as a template?

The stakes are larger than a single price rise. Microsoft rolled out Copilot integration globally this year, with varying increases by market. A loss in Australia could trigger disclosure changes elsewhere—or invite parallel cases. Even if fines prove modest relative to Microsoft’s size, the reputational hit and compliance precedent could reshape how software makers bundle AI into “must-have” suites.

Microsoft’s defense, in brief

Expect Microsoft to argue that Classic existed, that customers could find it, and that the company notified users about the AI integration and price changes in line with standard subscription practice. It will likely say Copilot adds value across writing, analysis, and automation, making the higher tiers a fair upsell for many users.

The court’s job is narrower: not to price Copilot’s worth, but to decide whether the communications and user path gave subscribers a fair, timely picture of all options at renewal.

The bottom line

This isn’t a referendum on Copilot or on price hikes. It’s a test of whether a dominant platform can treat an AI surcharge as the default while tucking the status-quo plan behind a cancellation click. If the ACCC prevails, software companies may have to make “keep what you have at the old price” as prominent as “upgrade,” especially when customers face real switching costs.

Why this matters:

• Essential software plus auto-renewal means disclosure design can change outcomes as much as price.
• As AI is bundled by default, regulators will press for clearer opt-outs and explicit consent when new features trigger higher bills.

Headline options:

• Microsoft sued in Australia over “hidden” Classic plan during Copilot price hikes
• Regulator says Microsoft steered millions to pricier 365 tiers by burying non-AI option