Microsoft Faces Lawsuit Over Alleged AI Misleading Claims

Australia’s competition watchdog has launched legal action against Microsoft, alleging the tech giant misled millions of customers into paying for its AI assistant, Copilot. The Australian Competition and Consumer Commission (ACCC) filed the suit in the Federal Court on Monday against Microsoft Australia and its parent company, Microsoft Corp.

The ACCC claims Microsoft made false or misleading statements to approximately 2.7 million Australians subscribed to Microsoft 365. These subscribers, enrolled in auto-renewing plans for a suite of online Office services, were allegedly presented with a deceptive choice. Microsoft told customers they could either pay more for Microsoft 365 services that included Copilot or cancel their subscriptions entirely.

Hidden Option Revealed During Cancellation

However, the regulator states a third option was concealed. Customers only discovered they could keep their existing “Classic” plans at the original price, without the AI assistant, after they began the cancellation process. ACCC Chair Gina Cass-Gottlieb asserted that Microsoft deliberately hid the Classic plans to push consumers toward more expensive Copilot-integrated subscriptions.

“Microsoft deliberately omitted reference to the Classic plans in its communications and concealed their existence until after subscribers initiated the cancellation process,” Cass-Gottlieb said. She emphasized the essential nature of Microsoft Office apps, noting that the lack of substitutes makes cancellation a significant decision for many users.

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Significant Price Differences and Potential Penalties

The alleged misconduct impacts subscribers on personal and family plans since October 31, 2024. The ACCC revealed that annual subscriptions for Microsoft 365 plans with Copilot cost between 29 and 45 percent more than the Classic plans without the AI feature.

The commission is now seeking court-ordered penalties, injunctions, consumer redress, and legal costs. Microsoft could face penalties of up to Aus$50 million (US$30 million) for each breach of Australian consumer law. Microsoft has not yet responded to a request for comment from AFP. The case highlights ongoing scrutiny of tech giants’ sales practices and their use of AI features like Copilot to drive revenue.