The federal government is suing Adobe and two of its executives for allegedly hiding expensive fees that kick in when consumers try to cancel subscriptions for Photoshop, Illustrator and other popular applications.
In a partially redacted 26-page complaint filed this week, the Justice Department (DOJ) and the Federal Trade Commission (FTC) accused Adobe of enrolling customers by default into its most expensive plan without disclosing key terms of the plan, such as letting them know that signing up for the pay-by-the-month subscription plan tied them to a year-long commitment and that cancelling the plan before the year was up triggered an early termination fee (ETF) that could cost hundreds of dollars.
Adobe also allegedly made the process of canceling a subscription extremely complex in hopes that users would opt instead to simply keep it.
“Adobe clearly discloses the ETF only when subscribers attempt to cancel, turning the stealth ETF into a powerful retention tool … by trapping consumers in subscriptions they no longer want,” the DOJ wrote in the complaint filed in the U.S. District Court of Northern California. “During enrollment, Adobe hides material terms of its APM plan in fine print and behind optional textboxes and hyperlinks, providing disclosures that are designed to go unnoticed and that most consumers never see.”
Consumers trying to cancel the subscription are met with an “onerous and complicated cancellation process,” the government agencies wrote. “As part of this convoluted process, Adobe ambushes subscribers with the previously obscured ETF when they attempt to cancel.”
Included in the complaint are Maninder Sawhney, Adobe’s senior vice president of digital go-to-market and sales at Adobe, and David Wadhwani, president of the digital media business at Adobe and who reports directly to Shantanu Narayen, the vendor’s chairman, president and CEO. Both are accused of helping to create and manage the company’s practices at issue.
Violating ROSCA
U.S. Attorney Ismail Ramsey said in a statement that any company selling goods and services over the internet is required under the 14-year-old Restore Online Shoppers’ Confidence Act (ROSCA) to “clearly and prominently disclose material information to consumers. It is essential that companies meet that responsibility to ensure a healthy and fair marketplace for all participants.”
“Adobe trapped customers into year-long subscriptions through hidden early termination fees and numerous cancellation hurdles,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection, said in a statement. “Americans are tired of companies hiding the ball during subscription signup and then putting up roadblocks when they try to cancel.”
The DOJ is seeking fines and an injunction to stop Adobe from using such practices.
Users Complain
A user on a Reddit thread wrote that Adobe “made it nearly impossible to find how to cancel. I had to watch YouTube videos after months of being charged.” Another wrote, “so looks like Adobe’s luck finally ran out. It was insanely painful trying to cancel.”
In the DOJ complaint, a consumer said they communicated with Adobe via the phone and chat support more than three times over months trying to cancel their subscription.
“Each time I try to cancel, there is a rigorous negotiation and instead of allowing the user to cancel their account, they offer 2 months at no charge,” the consumer said.
Another customer said that “Adobe literally will not let me cancel my subscription. Online I’m put thru an [sic] loop to continually sign in and cannot move forward to cancel.”
Recurring Revenues
Before 2012, Adobe sold its software with a perpetual license, so users would pay for it once and use it indefinitely. The company began transitioning to a subscription-based model that included monthly or annual billing and automatic renewal. In this model, the longer the customer stays on the subscription, the more money Adobe earns in recurring revenues.
The lawsuit notes Adobe’s growing reliance on subscription revenue, which is not unusual for most software makers. The DOJ noted that in 2019, the company brought in $7.71 billion in subscription-based revenue. By 2023, that amount had jumped to $14.22 billion of the $19.41 billion in all revenue Adobe generated.
Putting Out Another Fire
The company ran into another storm earlier this month when it changed the terms and conditions of applications like Photoshop that appeared to suggest that Adobe was claiming rights to the work that its users did on them. In a blog post, the company tried to clarify its intent, saying that the terms were not much different and that it always needed some access to enable the apps to perform as promised, deliver new capabilities, and to ensure no illegal content is being used or produced.
The company also stressed that it doesn’t use customers’ works to train its Firefly generative AI model – the training is performed on a dataset of licensed work – and doesn’t assume ownership of customers’ works.
“Adobe hosts content to enable customers to use our applications and services,” the software maker wrote. “Customers own their content and Adobe does not assume any ownership of customer work.”
