On Monday, the U.S. government filed a lawsuit against Adobe, alleging that the company, known for Photoshop and Acrobat, harmed consumers by hiding substantial termination fees in its popular subscription plan and creating roadblocks to canceling subscriptions.
Adobe's Hidden Fees and Other Obstacle Course
According to the federal regulator's complaint filed in the federal court in San Jose, California, Adobe fails to adequately disclose fees. These fees are calculated as 50% of the remaining payments when customers cancel within their first year, and according to the Federal Trade Commission (FTC), can amount to hundreds of dollars.
The FTC also alleged that Adobe employs various tactics to create obstacles for subscribers seeking to cancel their subscriptions, such as hiding termination fees and other critical terms in its annual subscription plan behind hyperlinks, fine prints, and text boxes.
The FTC stated that Adobe compels subscribers seeking to cancel online to navigate through multiple unnecessary pages. In contrast, subscribers who attempt to cancel by phone often face disconnections, repeat themselves to multiple representatives, or encounter resistance and delays from these representatives.
According to reports, David Wadhwani, the president of the digital media business, and Maninder Sawhney, the senior vice president of digital sales, are involved as defendants.
The FTC's Allegations
Samuel Levine, director of the FTC Consumer Protection Bureau, stated that Adobe trapped customers into year-long subscriptions with hidden early termination fees and numerous cancellation hurdles. He emphasized that American consumers are already tired of companies that hide terms during subscription sign-up and create obstacles when they attempt to cancel.
In a press release, the regulator pointed out that Adobe shifted primarily to a subscription model for its products after 2012, and most of the company's revenue now stems from subscriptions.
Adobe's Denial of FTC's Allegations
The company aims to challenge the FTC's allegations in court. Dana Rao, Adobe's general counsel and chief trust officer, cites subscription services as convenient, flexible, and cost-effective, allowing users to select plans that fit their preferences. Adobe also emphasizes its transparency regarding subscription agreements' terms and conditions, which provide a straightforward cancellation process.
Subscriptions made up $4.92 billion or 95% of Adobe's $5.18 billion revenue for the quarter ending March 1st.
The Restore Online Shoppers' Confidence Act's Violation
The FTC accused Adobe of also violating the Restore Online Shoppers' Confidence Act, a federal law enacted in 2010 that prohibits merchants from imposing charges, including those subscriptions that are related to automatic renewals, unless they disclose material terms and obtain customers' informed consent.
The lawsuit, titled U.S. v. Adobe Inc. et al., seeks civil penalties and an injunction to prohibit further misconduct, among other remedies. It was filed in the U.S. District Court for the Northern District of California on Monday, with case number 24-03630.
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