Australia sues Microsoft over Copilot pricing

Australia’s consumer regulator has dragged Microsoft to the Federal Court, alleging that roughly 2.7 million Australians were misled into paying more for Microsoft 365 after the company bundled its Copilot AI assistant with personal and family plans. Since late-October 2024, annual fees on the Personal and Family tiers rose by about 45% and 29% respectively, according to the regulator’s account, while communications to subscribers framed the choice as “pay the new price or cancel”. The Australian Competition and Consumer Commission (ACCC) says a third “Classic” option—retaining the pre-Copilot plan at the old price—was effectively hidden until customers initiated cancellation. Microsoft says it is reviewing the claims. The case, if proven, reaches beyond disclosure etiquette: it squarely tests how far platforms can leverage AI add-ons to steer mass-market pricing without fully presenting like-for-like alternatives.

Two issues drive the economic stakes. First is market power in productivity software. Microsoft’s family of collaboration and office tools enjoys entrenched network effects in workplaces and households; switching costs are non-trivial for document histories, shared drives and workflows. If consumers were nudged toward higher-priced bundles by omission rather than preference, the effective elasticity of demand shrinks and the mark-up expands—precisely the conduct consumer-law rules seek to deter. Second is the competitive neutrality of AI features. Copilot has a defensible cost base—compute and inference do raise marginal costs—but consumer-law doctrine prioritises clear, contemporaneous disclosure of true options. Courts will examine whether the Classic plan was reasonably visible at the decision point, and whether any framing materially misled typical users.

Markets will read the case in three channels. For Microsoft (MSFT), headline litigation risk in Australia is modest in absolute terms but material in precedent value. Civil penalties under Australia’s regime can scale to the greater of A$50 million, three times the benefit, or a percentage of turnover per contravention, with the court weighing conduct and consumer harm. If the court endorses the ACCC’s view, global regulators may copy the theory of harm, pressing for “equal prominence” disclosure of non-AI alternatives across jurisdictions. For local equities, the episode adds to a year of regulatory assertiveness that corporates must price into strategy; the S&P/ASX 200 (^AXJO) has been resilient on broader macro drivers, but large-cap tech suppliers with recurring consumer revenue will face tighter compliance premia. For FX, any direct AUD (AUDUSD) impulse is secondary to the rates-and-growth backdrop, though sustained tech-regulatory headlines can lean against animal spirits at the margin while the DXY and global risk tone set the range.

The forward path hinges on remedies. The ACCC’s wish-list typically spans penalties, declarations, injunctions and consumer redress; structurally, it will aim to force durable disclosure mechanics at renewal and sign-up—meaningfully visible toggles for “with-AI” and “Classic/without-AI” at identical steps in the flow, plus plain-English pricing tables that anchor any percentage rise to dated, pre-change baselines. If similar matters surface abroad, Microsoft would rationalise toward one global compliance pattern, trimming legal variance but codifying disclosure that makes upselling harder. That, in turn, could cool near-term ARPU uplift from AI bundles and re-emphasise product-market fit over forced migration. On balance, the base case is negotiated undertakings or a litigated judgment within the usual timelines; the tail risk is a broader template that other software-as-a-service giants must adopt, compressing pricing power from “AI as default”.

Investors should track three indicators over the next two quarters: (i) subscriber mix between AI-bundled and Classic-style plans where disclosed; (ii) any widening of comparable cases in the EU, UK or US that crystallises a cross-market standard; and (iii) the interaction with macro—if disinflation persists and real incomes rebuild, resistance to optional AI premiums may fade, but in a slow-growth scenario consumers will keep arbitraging bundles. Until the court speaks, the legal question is narrow—were options disclosed with sufficient prominence at the moment of choice?—but the competitive signal is broad: AI pricing must sell itself on value, not obscurity.