• Microsoft was accused in a U.K. lawsuit filed Tuesday of unfairly overcharging customers of rival cloud companies including Amazon, Google and Alibaba Cloud.
• The lawsuit alleges U.K. businesses are forced to pay more to license Microsoft's Windows Server software on rival firms' clouds than its own Azure platform.
• U.K. firms are owed more than £1 billion in compensation from the anti-competitive practices, according to the lawsuit.

LONDON — Microsoft on Tuesday was accused of unfairly overcharging customers of rival cloud companies in a lawsuit claiming damages of more than £1 billion ($1.27 billion).

The lawsuit alleges customers using Amazon Web Services (AWS), Google Cloud Platform or Alibaba Cloud — all key competitors to Microsoft's Azure cloud — are forced to pay more to license the tech giant's cloud-based Windows Server software on rivals' infrastructure.

Microsoft offers a cheaper price to firms running Windows Server on Azure than on direct competitors like AWS, Google's cloud or Alibaba Cloud. The lawsuit argues firms running the widely-used server software are essentially being overcharged to use alternative cloud computing solutions.

It adds Microsoft leverages its dominant market position in cloud-based server operating systems by extracting higher prices and inducing customers into moving to Azure. Claimant Maria Luisa Stasi, a competition lawyer, is seeking more than £1 billion in compensation for firms affected.

Microsoft declined to comment on the lawsuit.

"Put simply, Microsoft is punishing UK businesses and organisations for using Google, Amazon and Alibaba for cloud computing by forcing them to pay more money for Windows Server," Stasi, who is head of law and policy for digital rights advocacy group Article19, said in a statement shared with CNBC.

"By doing so, Microsoft is trying to force customers into using its cloud computing service Azure and restricting competition in the sector."

She added the lawsuit "aims to challenge Microsoft's anti-competitive behavior, push them to reveal exactly how much businesses in the UK have been illegally penalized, and return the money to organizations that have been unfairly overcharged."

Thousands of British businesses and organizations are represented in the lawsuit, which is an "opt-out" collective action. That means that any company potentially affected is automatically counted and can receive a payout if Microsoft loses.

Stasi represents the customers of Amazon, Google and Alibaba but doesn't represent any of these firms, her spokesperson told CNBC.

CMA preparing competition remedies

The development comes as the U.K.'s Competition and Markets Authority is preparing "behavioral" remedies addressing anti-competitive practices in the cloud industry following a months-long probe, with two sources telling CNBC last month a provisional decision could come as soon as this week.

The CMA declined to comment on the specific timing of its provisional decision. However, it's previously set a deadline of November to December 2024.

Earlier this year, Microsoft struck a 20 million euro ($21 million) settlement with cloud trade body CISPE and its members ending an EU antitrust complaint accusing the tech giant of unfair software licensing practices at its cloud division.

The deal saw Microsoft agree to charge firms the same price for running its software on smaller cloud companies' systems as it does on its own Azure platform.

But in September, Google filed a fresh antitrust complaint against Google with the European Commission, the executive body of the EU.

The suit alleged that Microsoft's software licensing terms effectively lock businesses into its Azure platform and make it harder to switch — and thus exerting control over the cloud market.

Solange Viegas Dos Reis, chief legal officer of French cloud computing firm OVHCloud, told CNBC some cloud hyperscalers are essentially "selling together two products that should be totally separated" — widely-used software and cloud infrastructure.

There's also an issue of hyperscalers offering more functionality of their software when it's running on their own cloud services than on third-party cloud services, Dos Reis said without singling out any particular vendor.

From 2017 to 2022, European cloud firms' market share halved from 27% to 13%, lagging international rivals as the entire European cloud market grew fivefold to 10.4 billion euros ($11 billion), according to data from Synergy Research Group.

The issue of software licensing in cloud is one that's not been assessed previously, Dos Reis told CNBC in an interview last week, adding OVH has "a lot of hope" with the CMA's cloud competition case.

OVHCloud agreed its own settlement with Microsoft in July, which saw it drop its own EU antitrust complaint against the U.S. tech giant.