(Reuters) -Australia's competition regulator on Monday sued Microsoft ( MSFT ), accusing it of misleading millions of customers into paying higher prices for its Microsoft ( MSFT ) 365 software after bundling it with artificial intelligence tool Copilot. 

The Australian Competition and Consumer Commission (ACCC) alleged that from October 2024, the technology giant misled about 2.7 million customers by suggesting they had to move to higher-priced Microsoft ( MSFT ) 365 personal and family plans that included Copilot.

After the integration of Copilot, the annual subscription price of the Microsoft ( MSFT ) 365 personal plan increased by 45% to A$159 ($103.32) and the price of the family plan increased by 29% to A$179, the ACCC said.

The regulator said Microsoft ( MSFT ) failed to clearly tell users that a cheaper "classic" plan without Copilot was still available.

The watchdog said the option to keep the cheaper plan was only revealed after consumers began the cancellation process, a design it argued breached Australian consumer law by failing to disclose material information and creating a false impression of available choices.

Microsoft's ( MSFT ) previous communications through emails and a blog post failed to mention the cheaper alternative, only informing customers that the price increase would apply at the next auto-renewal, the ACCC said. 

A Microsoft ( MSFT ) spokesperson said in an emailed response that it was reviewing the ACCC's claim in detail.

The ACCC is seeking penalties, consumer redress, injunctions and costs from Microsoft Australia Pty Ltd and its U.S. parent, Microsoft Corp. 

The ACCC said the maximum penalty that could be imposed on a company for each breach of Australian consumer law was the greater of A$50 million, three times the benefits obtained that were reasonably attributable, or 30% of the corporation's adjusted turnover during the breach period if the value of the benefits could not be determined.

"Any penalty that might apply to this conduct is a matter for the Court to determine and would depend on the Court's findings," the regulator said. "The ACCC will not comment on what penalties the Court may impose." 

($1 = 1.5389 Australian dollars)