Microsoft sued in Australia over alleged deceptive Copilot bundling

Australia’s competition regulator is suing Microsoft and its Australian subsidiary for allegedly misleading approximately 2.7 million customers about Microsoft 365 Personal and Family subscription options when it integrated Copilot AI.

The case raises stark transparency questions for enterprise customers, as CIOs increasingly look to include “AI transparency clauses” in renewal contracts to prevent similar price shocks tied to automation features.

Microsoft faces potential penalties of up to $33 million (A$50 million) for the breach.

While the lawsuit addresses consumer subscriptions, the bundling strategy signals broader implications for enterprise procurement. Technology leaders are now incorporating contractual safeguards against forced AI upgrades as software vendors increasingly integrate generative AI into core productivity suites and pass through corresponding cost increases.

Allegations of deceptive conduct

The Australian Competition and Consumer Commission (ACCC) alleged Microsoft engaged in deceptive conduct from October 31, 2024, by telling subscribers with auto-renewal enabled they had two options: accept Copilot integration with a price increase of up to 45% or cancel their subscription. The regulator claims that Microsoft deliberately concealed a third option that would have allowed customers to maintain their existing features at previous prices.

“The ACCC alleges that since 31 October 2024, Microsoft has told subscribers of Microsoft 365 Personal and Family plans with auto-renewal enabled that to maintain their subscription they must accept the integration of Copilot and pay higher prices for their plan, or, alternatively, cancel their subscription,” the ACCC said in a statement. “This information provided to subscribers was false or misleading.”

Deliberate omission alleged

The case centers on two emails and a blog post Microsoft allegedly sent subscribers about Copilot integration and accompanying price increases. Annual subscription prices for Microsoft 365 Personal increased from $71 to $103 (A$109 to A$159), while Family plans rose from $90 to $116 (A$139 to A$179). According to the ACCC’s court filings, Microsoft made no mention of Microsoft 365 Classic plans in these communications.

“We will allege in court that Microsoft deliberately omitted reference to the Classic plans in its communications and concealed their existence until after subscribers initiated the cancellation process to increase the number of consumers on more expensive Copilot-integrated plans,” ACCC Chair Gina Cass-Gottlieb said in the statement.

The Classic plans allegedly became visible only when subscribers began the cancellation process, denying customers the ability to make informed decisions about subscription options that included retaining all existing features without Copilot at the lower price point. The proceedings involve only consumer Microsoft 365 Personal and Family plans, not business or enterprise subscriptions.

Industry shift toward AI bundling

Microsoft’s bundling approach reflects a broader industry shift, according to Sanchit Vir Gogia, chief analyst and CEO at Greyhound Research. “Customers rarely buy AI as an isolated feature, so vendors are turning it into part of the core suite,” Gogia said. “For Microsoft, adding Copilot straight into Word, Excel, and Outlook ensures that every user encounters its capabilities in their daily routine.”

However, the strategy introduces transparency risks extending beyond consumer markets. “Once an AI feature becomes the default rather than an explicit decision, the boundary between added value and forced adoption becomes blurred,” Gogia said. He added that leaders are now writing “AI transparency clauses” into renewal contracts to prevent surprise increases tied to new automation features.

“Optional AI lets finance and risk teams ring-fence cost, audit usage, and decide when to scale,” Gogia said. “Bundled AI removes that visibility. Vendors that trade clarity for faster uptake may gain short-term revenue but risk long-term erosion of customer confidence.”

Microsoft rolled out Copilot integration globally in January with varying price increases across jurisdictions. The Australian action comes months after those worldwide changes.

Market power amplifies scrutiny

The ACCC emphasized the essential nature of Microsoft Office applications in its complaint. “The Microsoft Office apps included in 365 subscriptions are essential in many people’s lives, and given there are limited substitutes to the bundled package, canceling the subscription is a decision many would not make lightly,” Cass-Gottlieb added.

Gogia noted this market position amplifies regulatory scrutiny and affects enterprise procurement dynamics. “When a platform becomes as entrenched as Office 365, every additional service layered on top of it inherits the power of that monopoly,” he said. The analyst pointed to Microsoft’s antitrust pressure in Europe for tying Teams to Office 365 as a similar pattern.

“The key difference is that Copilot is not an app but a learning system embedded into the workflow itself,” Gogia said. “When intelligence becomes inseparable from the productivity stack, procurement moves beyond simple licensing to questions of liability and governance.”

Potential penalties and global implications

The ACCC is seeking penalties, injunctions, declarations, consumer redress, and costs. Under Australian Consumer Law, the maximum penalty for each breach is the greater of $33 million (A$50 million), three times the total benefits obtained from the conduct, or 30% of Microsoft’s adjusted turnover during the breach period if benefits cannot be determined.

Microsoft did not immediately respond to ComputerWorld’s queries.

Gogia suggested the case could become a global template for AI transparency. “If the Australian court rules that Microsoft misled users, the ripple will be immediate,” he said. “Global vendors would have to redesign renewal communications to show exactly what portion of a subscription relates to AI, what data it uses, and how customers can opt out.”

“Transparency around AI is quickly turning into a measure of corporate ethics,” Gogia said. “Copilot now stands as the global test case for whether default AI integration can coexist with fair disclosure.”

Existing Microsoft 365 Personal and Family subscribers who have not renewed since July 8 may still access Classic plans by initiating the cancellation process, according to the ACCC.