When Microsoft told customers it was jacking up the price by 45% for its office suite, it gave them two options: accept the price for the product – and its AI add-ons – or cancel.

According to Australia’s consumer watchdog, the tech giant allegedly failed to share that a third option was available – pay the same lower price and opt out of the AI, named Copilot, in Microsoft 365.

The Australian Competition and Consumer Commission (ACCC) has taken Microsoft to federal court on Monday alleging the company misled approximately 2.7 million Australian personal and family plan customers by failing to disclose the third option when the Microsoft 365 plans had Copilot included from 31 October 2024.

The ACCC has alleged communications with customers only presented two options: paying the higher price or cancelling the plan.

The regulator alleged this information was false or misleading as there was an undisclosed third option of “classic” plans which allowed subscribers to retain the features of existing plans without Copilot at the previous lower price.

Consumers were only presented this option when subscribers began cancelling their subscription, the ACCC has alleged.

The annual subscription price of the Microsoft 365 personal plan increased by 45% from $109 to $159 with Copilot included. The annual subscription price for the Microsoft 365 family plan increased by 29% from $139 to $179.

Microsoft sent two emails and published a blog post to inform auto-renewing subscribers about the Copilot integration and pending price increase.

“We allege that Microsoft’s two emails to existing subscribers and the blog post were false or misleading as they conveyed that consumers had to accept the more expensive Copilot-integrated plans, and that the only other option was to cancel, the ACCC chair, Gina Cass-Gottlieb, said.

“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.”

Cass-Gottlieb said the office apps included in 365 subscriptions are essential in many people’s lives, and given there are limited substitutes to the bundled package, cancelling may not have been an option people would take lightly but customers may have opted for the classic plan if they had been aware of all the viable options.

The ACCC’s investigation drew on a significant number of consumer reports as well as online commentary from sites including Reddit, the regulator said.

The ACCC is seeking orders including penalties, injunctions, declarations, consumer redress and costs.

The maximum penalty would be the greater of $50m, three times the total benefits that have been obtained and are reasonably attributable, or 30% of the corporation’s adjusted turnover during the breach turnover period, if total benefits cannot be determined.

“Consumer trust and transparency are top priorities for Microsoft, and we are reviewing the ACCC’s claim in detail,” a Microsoft spokesperson said. “We remain committed to working constructively with the regulator and ensuring our practices meet all legal and ethical standards.”