The US government is taking Adobe, the makers of the popular editing software “Photoshop,” to court over accusations the company has been “trapping” customers into long-term subscription plans and concealing fees from these customers.
The lawsuit was brought by the Federal Trade Commission (FTC) and alleges that some of the fees hidden in fine print can cost someone hundreds of dollars.
FTC Lawsuit
On Monday, the FTC wrote a press release announcing the lawsuit and the accusations against Adobe.
“The Federal Trade Commission is taking action against software maker Adobe and two of its executives, Maninder Sawhney and David Wadhwani, for deceiving consumers by hiding the early termination fee for its most popular subscription plan and making it difficult for consumers to cancel their subscriptions,” said the press release.
Trapped Customers
Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, accused Adobe of “trapping” customers into long-term subscriptions through hidden termination fees and other barriers to cancellation.
“Adobe trapped customers into year-long subscriptions through hidden early termination fees and numerous cancellation hurdles,” said Levine. “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.”
History of Subscription Model
According to the FTC, Adobe changed its business plan in 2012 to prominently focus on its subscription model. This model forced customers to continually pay a recurring fee to access and use its popular software.
“Subscriptions account for most of the company’s revenue,” said the FTC statement.
Annual Paid Monthly
One of the thrusts of the lawsuit complaint is the company’s “annual paid monthly” subscription plan that is pre-selected by default and “buries” an early termination fee of 50 percent of the remaining monthly payments if a person decides to cancel.
With an “annual paid monthly” subscription, a customer is committed to paying a larger sum over a year compared to just a month-by-month subscription in exchange for getting a discounted rate. The other two subscription options Adobe offers are called “Monthly” and “Annual Prepaid.”
Unlawful Enrollment Practices
The lawsuit also accuses Adobe of being engaged in unlawful practices to get customers into an “enrollment flow.”
“For many products and services, Adobe offers free trials in addition to no-trial (or “buy now”) subscriptions. Adobe automatically converts consumers who select the APM plan during a free trial enrollment to paid subscribers if they do not cancel their subscriptions before the trial period ends. Consumers who start with a “buy now” APM subscription, rather than a free trial, encounter substantially the same enrollment flow, except the “buy now” subscription flows do not contain text relating to a free trial,” the lawsuit complaint says.
Khan’s Comments
Lina Khan, the chair of the Federal Trade Commission, released a post thread on the social media platform X on Monday breaking down the accusations against Adobe and issuing a stern warning.
“Because two senior executives were involved in overseeing, directing, controlling, or participating in Adobe’s illegal business practices, they are named in the complaint. @FTC won’t hesitate to hold individual executives accountable for violating the law,” wrote Khan.
Adobe’s Response
The company has responded to the accusations leveled against them by the FTC and looks forward to fighting these claims in court.
“We are transparent with the terms and conditions of our subscription agreements and have a simple cancellation process,” said Dana Rao, Adobe’s general counsel and chief trust officer.
Convenient and Flexible
Roa fought back against the narrative from the FTC that the cancellation process was overburdening its customers. In his statement, Road extolled the virtues of a subscription-based service model.
“Subscription services are convenient, flexible and cost-effective to allow users to choose the plan that best fits their needs, timeline and budget,” Rao said in the Adobe company statement.“We will refute the FTC’s claims in court.”
FTC Rule Changes
This lawsuit against Adobe followed rule change proposals made by the FTC last year meant to address this issue in the industry.
“Some businesses too often trick consumers into paying for subscriptions they no longer want or didn’t sign up for in the first place,” said Khan last year. “The proposed rule would require that companies make it as easy to cancel a subscription as it is to sign up for one. The proposal would save consumers time and money, and businesses that continued to use subscription tricks and traps would be subject to stiff penalties.
Click to Cancel
The FTC has advocated for a “Click to Cancel” model to become the standard for recurring subscriptions and memberships.
“If consumers are unable to easily leave any program when they want to, the negative option feature becomes nothing more than a way to continue charging them for products they no longer want. To address this issue, the proposed rule would require businesses to make it at least as easy to cancel a subscription as it was to start it. For example, if you can sign up online, you must be able to cancel on the same website, in the same number of steps,” said the FTC last March.
Civil Trial
This FTC lawsuit, filed in conjunction with the Civil Division of the U.S. Department of Justice, demands a jury trial in the United States District Court of the Northern District of California.
The complaint asks for a “permanent injunction, monetary judgment, civil penalty judgment, and other relief.” This prayer for relief involves asking the court to impose civil penalties on the defendants along with any monetary awards that the Court can grant.
