FTC Takes Legal Action Against Adobe Over Alleged Deceptive Contract Practices

How difficult can a company make it to unsubscribe from a service before it’s illegal? This is at the heart of a pending legal battle against SaaS giant Adobe Inc., provider of programs such as Adobe Photo Shop, Premiere Pro and Adobe Reader.

The popular company provides access to a suite of programs for a monthly fee, following what has become a common practice for software developers. Rather than having to pay a large one-time fee and then buy a constant stream of updates, consumers pay a smaller amount monthly and get updates as they’re available. That part is straightforward. The terms and conditions, however, are not always as clear.

The Federal Trade Commission (FTC) made headlines recently by taking significant legal action against Adobe and two of its top executives, Maninder Sawhney and David Wadhwani, for allegedly deceiving consumers. The charges stem from Adobe's handling of early termination fees (ETFs) associated with its popular subscription plans and the difficulties consumers faced when trying to cancel these subscriptions.

The Heart of the Allegations

According to the FTC, Adobe has been misleading customers by promoting its “annual paid monthly” subscription plan without adequately disclosing the substantial costs involved if consumers decide to cancel within the first year. The complaint, filed by the Department of Justice (DOJ) at the FTC’s request, highlights how Adobe prominently displayed the monthly cost during the signup process while burying critical information about the ETF. This fee, amounting to 50% of the remaining monthly payments for the first year, could easily add up, catching consumers off guard.

Hidden Fees and Buried Information

The FTC’s complaint paints a troubling picture of Adobe’s practices. The early termination fee was often hidden in small print or required consumers to hover over tiny icons to access the information. This lack of transparency led to significant consumer confusion and frustration. Notably, the complaint suggests that Adobe was well aware of this confusion but continued with these practices.

Obstacles to Cancellation

The hurdles didn’t end with hidden fees. The FTC alleges that Adobe also designed its cancellation process to be deliberately difficult. Consumers trying to cancel their subscriptions were often led through a maze of screens and clicks on Adobe’s website. Those who reached out to customer service encountered further obstacles, including dropped calls, interrupted chats, and multiple transfers. Some consumers, thinking they had successfully canceled, found out later through their credit card statements that Adobe continued to charge them.

Legal Violations

The FTC’s complaint includes several serious charges:

• Violation of the Restore Online Shoppers’ Confidence Act (ROSCA) and the FTC Act: Adobe, along with executives Wadhwani and Sawhney, failed to clearly disclose critical terms of the subscription, including billing, renewal, and cancellation fee details.
• Failure to Obtain Informed Consent: Adobe did not secure explicit informed consent from consumers before charging their credit cards.
• Lack of Simple Cancellation Mechanisms: The company did not provide straightforward methods for consumers to stop recurring charges.

FTC’s Stance and Future Implications

FTC’s Bureau of Consumer Protection Director, Samuel Levine, strongly criticized Adobe’s practices, stating, “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.”

The case is currently pending in the U.S. District Court for the Northern District of California. As this case unfolds, it could set a significant precedent for how subscription services are marketed and managed, ensuring that consumers are not misled or trapped by hidden fees and convoluted cancellation processes. The outcome of this case will be closely watched by both industry insiders and consumer advocates.