The consumer watchdog has taken legal action against technology giant Microsoft, alleging it deliberately misled 2.7 million Australians over subscription costs for its AI products and other software so they would remain on more expensive plans.
On Monday, the Australian Competition and Consumer Commission (ACCC) began proceedings in the Federal Court against Microsoft Australia and its parent company, Microsoft Corporation, over how it communicated price increases to customers of its Copilot AI assistant and Microsoft 365 plans, including software such as Word, Excel and PowerPoint.
The ACCC has launched legal action against US software giant Microsoft.Credit: Getty Images
The ACCC alleges that since October 31, 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 that following the integration of Copilot, the annual subscription price of the Microsoft 365 Personal plan increased by 45 per cent from $109 to $159, while the annual subscription price for the Microsoft 365 Family plan increased by 29 per cent from $139 to $179.
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This information was false or misleading, the ACCC alleges, because there was “an undisclosed third option” – the Microsoft 365 Personal or Family Classic plans – which allowed subscribers to retain the features of their existing plan, without Copilot, at the previous lower price.
“Microsoft’s communication with subscribers did not refer to the existence of the ‘Classic’ plans, and the only way subscribers could access them was to begin the process of cancelling their subscription,” the consumer watchdog said.
Customers needed to navigate to the subscriptions section of their Microsoft account, select cancel subscription, and only on a following page, were they given the option to instead move to the classic plan.
ACCC chair Gina Cass-Gottlieb said that after a detailed investigation, which included looking into complaints it received as well as scouring commentary on online forum Reddit, the watchdog was alleging 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.Credit: Peter Rae
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Cass-Gottlieb said Microsoft Office software included in the company’s 365 subscriptions “are essential in many people’s lives and given there are limited substitutes to the bundled package, cancelling the subscription is a decision many would not make lightly”.
“We believe many Microsoft 365 customers would have opted for the Classic plan had they been aware of all the available options,” she said.
A Microsoft spokesperson said the company was reviewing the ACCC’s claim and that “consumer trust and transparency are top priorities”. “We remain committed to working constructively with the regulator and ensuring our practices meet all legal and ethical standards,” the spokesperson said.
Erin Turner, chief executive of the Consumer Policy Research Centre, said it was “brave” for the ACCC to “take action against a very powerful tech company that so many Australians rely on”.
“While most of our consumer law cases are more cut and dry where a company has misled, it appears that the ACCC is making its case of misleading conduct through omission,” Turner said. “It looks like Microsoft has pulled a bait and switch on its customers, allegedly not even telling them they could keep paying their original, cheaper plan.”
Turner said the case underscored the need for the government to legislate stronger consumer laws, including a long-promised crackdown on so-called subscription traps as part of broader reforms to introduce specific prohibitions on “unfair trading practices” to plug gaps in the existing consumer law.
In the government’s proposed actions, it has identified subscription traps, as well as drip pricing – in which the total cost of a product builds through fees and other unadvertised prices through the online checkout process – as one of several “dark patterns” used by businesses that would be deemed unfair and prohibited.
“Our research has consistently shown that Australians are trapped in subscriptions where companies are using digital tricks to get you to pay more or making it difficult to cancel,” Turner said.
In its action against Microsoft, the ACCC is seeking for the Federal Court to make penalties and consumer redress orders for the tech giant. The maximum penalty under consumer law is the greater of $50 million; three times the total benefits that were obtained by the breach; or 30 per cent of the corporation’s adjusted turnover during the breach period.
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