Microsoft is fighting a massive £2.1 billion lawsuit in the UK that accuses the tech giant of using its Windows Server software to tilt the cloud computing market in its favour. The case, which could reshape how software licensing works in the cloud era, alleges Microsoft has been systematically overcharging thousands of British businesses that run Windows Server on rival platforms like Amazon Web Services, Google Cloud, and Alibaba Cloud.

The lawsuit landed at London’s Competition Appeal Tribunal this week, with competition lawyer Maria Luisa Stasi arguing on behalf of nearly 60,000 businesses that Microsoft’s pricing practices create an uneven playing field. According to court filings, companies using Windows Server on competing cloud services face higher licensing fees than those running the same software on Microsoft’s own Azure platform. That’s not exactly subtle, it’s like charging more for gasoline if you’re not filling up at the company’s own stations.

Here’s the thing: Stasi’s legal team claims this isn’t just about pricing. They argue Microsoft intentionally “degrades the user experience of Windows Server” on rival clouds as part of what they call “a coherent abusive strategy to leverage Microsoft’s dominant position.”

Microsoft, unsurprisingly, wants the case thrown out. The company argues that Stasi’s legal team hasn’t provided a proper framework for calculating alleged losses and maintains that its vertically integrated business model – where it both licenses Windows Server to competitors and uses it as a foundation for Azure, actually benefits competition. A Microsoft spokesperson reportedly pointed to what they called “the reality of a sector that has never been so dynamic and competitive.”

This legal battle comes at an awkward time for Microsoft, which just announced a $23 billion global investment plan earlier this week to expand its cloud and AI infrastructure. The company’s cloud business has been growing rapidly, with Azure competing fiercely against AWS and Google Cloud in a market that generated $90 billion in revenue just in the fourth quarter of 2024.

Regulators on both sides of the Atlantic have been watching Microsoft’s cloud practices closely. Back in July, Britain’s Competition and Markets Authority released a report concluding that Microsoft’s licensing rules “materially disadvantaged AWS and Google” by making it more costly or less efficient for customers to run key software elsewhere. European regulators have also been examining whether cloud giants have amassed too much influence, with concerns ranging from data portability to restrictive licensing.

At £2.1 billion (about $2.8 billion), it represents a significant collective action against a tech company in the UK. And it arrives as cloud computing transitions from being a nice-to-have utility to the essential infrastructure powering everything from AI development to enterprise software.

If the tribunal allows the case to proceed, it could force Microsoft to fundamentally rethink how it licenses Windows Server in cloud environments. More broadly, it might set precedents for how dominant software companies can leverage their existing products to gain advantage in new markets. For the thousands of UK businesses caught in the middle, the outcome could mean huge refunds or confirmation that they’ll need to factor these pricing disparities into their cloud strategy moving forward.

The hearing continues at the Competition Appeal Tribunal, with a decision on whether to certify the case expected in the coming weeks. Either way, the cloud computing wars just got a lot more expensive.