Why are the feds going after Adobe?

Amid a flurry of tech news yesterday, the Federal Trade Commission (FTC), the U.S. federal agency in charge of antitrust and consumer harm, announced it was launching legal action against Adobe Inc., and two of its executives, for deceptive practices related to subscription cancellations and hidden fees.

The complaint, filed by sister federal agency the Department of Justice (DOJ) on behalf of the FTC in the U.S. District Court for the Northern District of California, targets Adobe and its executives, Maninder Sawhney, Senior Vice President of Digital Go To Market & Sales, and David Wadhwani, President of Adobe’s Digital Media Business.

It alleges that Adobe deceived consumers by not adequately disclosing the costly early termination fees (ETFs) associated with their “annual paid monthly” (APM) subscription plan and by making the cancellation process unnecessarily complicated. Read it in full here:

The news of the FTC and DOJ’s tag team on Adobe comes at a particularly inopportune time for the company, at least in the court of public opinion, as it has spent the last few weeks attempting to explain to aggrieved consumers a new Terms of Service policy and ultimately committing to amending it to try and clarify it won’t train AI content on consumers’ works, nor will it claim ownership of them.

Deceptive subscription practices

Adobe, renowned for its popular software products such as Photoshop, Acrobat, and Illustrator, transitioned from a perpetual licensing model to a subscription-based model in 2012 with the launch of Adobe Creative Cloud.

This significantly boosted Adobe’s recurring revenue, which almost doubled from $7.71 billion in 2019 to $14.22 billion in 2023.

The DOJ’s complaint reveals that Adobe steers consumers towards its “annual paid monthly” (APM) plan by pre-selecting it as the default option during the subscription signup process.

While the monthly cost of the plan is prominently displayed, the early termination fee is allegedly buried in fine print and behind optional textboxes and hyperlinks.

The fee amounts to 50% of the remaining monthly payments if canceled within the first year but is often only discovered by consumers when they attempt to cancel their subscription, according to the DOJ complaint.

Challenging cancellation process

The FTC’s investigation uncovered that Adobe’s cancellation process is designed to be cumbersome and a deterrent.

Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, stated, “Adobe trapped customers into year-long subscriptions through hidden early termination fees and numerous cancellation hurdles. Americans are tired of companies hiding the ball during subscription signup and then putting up roadblocks when they try to cancel. The FTC will continue working to protect Americans from these illegal business practices.”

Consumers attempting to cancel their subscriptions have reported numerous obstacles, such as having to navigate multiple web pages, re-entering passwords, and being forced to engage with retention offers before they can cancel. Additionally, contacting Adobe’s customer service often involves long wait times, dropped calls, and multiple transfers, leading to further frustration and delays.

ROSCA violations

The complaint charges Adobe with violations of the Restore Online Shoppers’ Confidence Act (ROSCA), a 2010 law that prohibits businesses from charging consumers without clear disclosure of transaction terms and obtaining explicit consent.

FTC Chair Lina Khan highlighted the impact of Adobe’s practices on consumers, stating on her X account, “Adobe ambushed users with hefty ‘early termination fees’ and threw up obstacles when people tried to cancel.” She added, “Some users who tried to cancel by contacting customer service would have their calls drop or disconnect and then have to re-explain everything all over again.”

The FTC wants to hear from affected consumers/Adobe users

The FTC seeks a permanent injunction to prevent future violations, monetary civil penalties, and other relief.

Consumers affected by Adobe’s practices are encouraged to report their experiences to the FTC at ReportFraud.ftc.gov.

The FTC’s action against Adobe and its executives serves as a crucial reminder for companies to prioritize transparency and fairness in their dealings with consumers. As this case unfolds, it may set significant precedents for how subscription-based services are marketed and managed, potentially leading to more stringent regulations and protections for consumers in the digital marketplace.

We’ve reached out to Adobe for its response to the FTC and DOJ complaint and will update when we receive one.