Microsoft has now filed its defence, setting up what promises to be a significant contest about disclosure obligations under the Australian Consumer Law (ACL), the nature of subscription software models, and when silence in a sales context amounts to misleading conduct.

Background 

The ACCC alleges that from 31 October 2024, Microsoft communicated to existing auto-renewing subscribers that they had just two choices: accept Copilot AI integration with an accompanying price increase, or cancel their subscription. The price increases were material, amounting to increases in annual fees of over 40% for Microsoft 365 (M365) Personal and of almost 30% for M365 Family subscriptions. However, what Microsoft did not disclose in its public statements, including two rounds of subscriber emails, was the existence of a "Classic Option": namely, a third path that allowed subscribers to retain their existing subscription, at their existing price, without AI integration. The ACCC asserts that this option was deliberately buried within the cancellation flow, visible only to subscribers who had already begun cancelling their subscription. In the proceedings, it alleges that Microsoft made three false or misleading representations in breach of the ACL:

• Copilot acceptance was necessary to maintain a subscription;
   
• a price increase was necessary to retain the Microsoft 365 subscription; and 
   
• subscribers only had two options. 

Microsoft's admissions and defence 

In its recently filed Defence, Microsoft admits (or at least does not dispute) some of the foundational allegations by the ACCC. Specifically, that:

• the price increases, asserting that these represented the first increases to Microsoft 365 Personal and Family pricing since the products were introduced in Australia in approximately 2014 and 2013, respectively (other than foreign exchange adjustments); 
   
• the public statement and the two subscriber emails were issued in the terms alleged by the ACCC; and
   
• the M365 Classic option was not mentioned in either the blog post or the subscriber emails. 

Microsoft's subscription model argument 

Where Microsoft pushes back is in the characterisation of the Classic Option and the nature of the subscription model itself. The most interesting argument in the Defence is Microsoft's characterisation of its M365 subscriptions. Microsoft argues that "delivering the latest innovations to subscribers as they become available is the essence of a subscription software model". On this framing, the addition of Copilot was not a transformation of the product that required separate consumer consent, it was simply part of what a subscription has always entailed: continuous evolution. Microsoft specifically denies the ACCC's description of Copilot as a discrete "AI product" inserted into the bundle, saying instead that Copilot is "an umbrella brand for generative AI apps and features" that "continue to develop and evolve". The implication is that Microsoft did not need to disclose to its customers the availability of the Classic option because the Copilot and price changes were simply the next chapter in a product subscribers already understood to be dynamic.

The Classic Option as a retention offer 

The second key argument raised in the Defence entirely reframes the Classic Option. Rather than accepting the ACCC's description of the Classic Option as a third genuine option available to all subscribers, Microsoft characterises it as a "retention offer" in the nature of a time-limited legacy product offered only to subscribers who had already initiated cancellation. Microsoft explains that M365 Classic was a "static offering" that would not receive further AI-related updates, making it a downgrade rather than an equivalent, and that it would ultimately be discontinued. On this reasoning, it was appropriate for Microsoft to offer the M365 Classic as part of the cancellation flow rather than in general communications, because that is precisely where a retention offer belongs.

Reliance on subscription management and cancellation notices 

A third key part of Microsoft’s defence is its assertion that its emails invited subscribers to manage and cancel their subscriptions. Microsoft highlights the content in its subscriber emails that it says directed them toward further options. The first email included the phrase "Learn more about how to manage your subscription, including how to cancel". The second email included the phrase "Cancel any time to stop future charges or change how you pay by managing your subscription in your Microsoft account". Microsoft relies on the full terms of both emails and says that subscribers were therefore on notice that management and cancellation options were available to them.

Microsoft's reliance on January 2025 communications 

Microsoft also points to a January 2025 support article and blog post (published around the time of the global rollout of the Copilot update on 16 January 2025) that apparently explained to existing auto-renewing subscribers that they could switch to M365 Classic for a limited time. The January 2025 blog post stated: "Existing subscribers with recurring billing enabled with Microsoft can switch to plans without Copilot or AI credits like our Basic plan, or, for a limited time, to new Personal Classic or Family Classic plans". 

Finally, Microsoft’s defence draws a distinction between Microsoft Corporation (the US entity that prepared the relevant communications) and Microsoft Australia, which is characterised throughout the defence as an Australian reseller. Microsoft disputes the ACCC's characterisation of Microsoft Australia as the entity responsible for the communications and appears to contest the basis on which both entities should be held jointly liable.  In short, it asserts that its parent was responsible for the relevant conduct and the Australian entity should, therefore, escape liability.

Will Microsoft's arguments succeed? 

Key to the ACCC’s case is the question of when a supplier must inform consumers of all available options when selling them a product. Under the ACL, misleading silence occurs where there is a reasonable expectation of disclosure of information that would likely affect the consumer's decision. The ACCC's case is squarely based on this: it says existing subscribers reasonably expected to be told about all their options when receiving communications that purported to explain their choices. Microsoft's answer is that there was no omission for it to remedy because the Classic Option was a niche retention offer rather than a mainstream alternative. The Court will need to assess this from the perspective of the ordinary consumer receiving the emails.

On the present pleadings and authorities, we think that Microsoft’s primary arguments face real headwinds for several reasons:

• In assessing alleged misleading and deceptive conduct to the public, Australian courts assess the overall impression conveyed to the ordinary, reasonable consumer, viewing communications as a contextual whole and placing weight on the dominant message. Where a communication sets out “your choices”, but fails to mention a materially relevant, cheaper pathway, this could be a misleading half‑truth even if the supplier later surfaces that option elsewhere. Against that framework, the October–November 2024 emails (as pleaded) framed a binary decision — accept Copilot and a higher price, or cancel — without flagging the no-change Classic option. On that framing, the Court could readily find that many ordinary consumers would assume a no‑upgrade, no‑price‑rise option was simply not available. 
   
• Microsoft’s subscription‑model characterisation – that innovation is the essence of a subscription – helps explain why Copilot was added to Microsoft 365 but does not answer the ACCC’s “omission” complaint. The Court will likely focus on what the statements did (and did not) tell the ordinary consumer at the time the statements were made. The availability of a “disable Copilot” toggle from January 2025 and later blog/support articles will not necessarily erase the earlier dominant message in renewal notices.
   
• Calling the ongoing Classic Option a “time‑limited legacy/retention” product may ultimately bear upon remedy, but is unlikely to negate liability if the Court finds that, when communicating renewal “choices”, subscribers should reasonably have been able to expect that Microsoft would tell them a materially cheaper path that avoided the change.

Put simply: even if some consumers accept that subscription-based software evolves, that does not excuse Microsoft from omitting a salient alternative when presenting consumers with the available choices. The ACCC’s omission case is orthodox and well‑supported; while Microsoft’s defence will require the Court to accept that its no-change and no-charge Classic Option was sufficiently different (or sufficiently niche) that it did not need to be volunteered in the initial communications to consumers.  In our view, this will be a difficult task.

Why this case matters? 

Whatever the outcome, this case will have real consequences for how all companies communicate product and pricing changes to Australian consumers. The ACCC's enforcement action sends a clear signal that burying options in cancellation flows — rather than disclosing them upfront — will be scrutinised as potentially misleading by omission. Microsoft's defence, in turn, articulates a set of arguments that many subscription-based businesses will be watching closely: that subscription models carry an implied expectation of change, that not every option needs to be volunteered in every consumer communication, and that a "retention offer" is a commercially legitimate and distinct category from a mainstream product offering. With approximately 3 million Australian subscribers and annual revenue for Microsoft Australia reported at approximately $9.2 billion for the financial year ending 30 June 2025, this is not a minor consumer matter. The decision, when it comes, will be required reading for all Australian businesses.