Adobe's Auto-Renew Subscriptions Conduct Harmed Consumers for Years, Alleges FTC

Adobe deceived consumers by hiding early termination fees for its Photoshop and Acrobat subscriptions, among others, and by not making it easy for them to cancel, alleged an FTC complaint Monday (docket 5:24-cv-03630) in U.S. District Court for Northern California in Oakland.

The Restore Online Shoppers’ Confidence Act (ROSCA) complaint also names Maninder Sawhney, Adobe senior vice president-digital go to market and sales, and David Wadhwani, president-digital media business, as defendants. Wadhwani was “one of the chief architects behind Adobe’s pivot from its legacy product offerings to its current digital subscription model based on maximizing recurring revenues,” said the complaint. The section of the complaint describing Sawhney's role in Adobe's "unlawful enrollment practices" was redacted.

Adobe has harmed consumers “for years” by enrolling them in its default, “most lucrative” subscription plan “without clearly disclosing important plan terms,” alleged the complaint. The software company fails to adequately disclose that by signing up for the annual, paid monthly subscription plan, consumers are “agreeing to a year-long commitment and a hefty early termination fee” (ETF) that can amount to “hundreds of dollars,” the complaint said.

ROSCA generally prohibits companies from charging consumers for goods or services sold in internet transactions through a “negative option feature” unless the seller: “(a) clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information; (b) obtains the consumer’s express informed consent before making the charge; and (c) provides simple mechanisms to stop recurring charges,” said the complaint. It defined a negative option feature as a provision under which a consumer’s “silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.”

Before 2012, Adobe sold its software to consumers under a perpetual licensing model where they paid for the product once and “could use it indefinitely,” said the complaint. The company began shifting to a subscription-based licensing model in 2012, where consumers must pay for monthly or yearly access to its products under an automatic renewal model, it said. Adobe earns more revenue the longer a consumer remains subscribed; the shift to the subscription model “has significantly increased its recurring revenues,” the complaint said.

Adobe has sold subscriptions to its flagship applications -- Acrobat, Photoshop, Illustrator, and Creative Cloud -- to a range of consumers on its website under monthly, annual paid monthly (APM) and annual prepaid plans. The defendant frequently “pre-selects the APM plan as a default selection in subscription enrollment flows,” the complaint alleged. Under that plan, subscribers are charged each month until they affirmatively cancel; cancellation before the year's end is subject to an ETF, it said.

Adobe calculates the ETF amount at 50% of the “remaining contract obligation,” meaning the customer is “charged a lump sum amount” of 50% of the total monthly charges for the months remaining in the annual contract, the complaint said. Subscribers who cancel before the end of the first year lose service at the end of the monthly billing period during which they cancel, and subscribers canceling within 14 days of their first payment are entitled to a full refund, the complaint said.

Adobe’s subscription-based model incentivizes it to, “on the front end, lock consumers into longer-term subscriptions like the APM plan, and, on the back end, discourage cancellation,” alleged the complaint.

In cases where Adobe offers free trials for subscriptions, it “automatically converts consumers who select the APM plan during a free trial enrollment to paid subscribers” if they don’t cancel the subscriptions before the trial ends, said the complaint. 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 don't contain text relating to a free trial, it said.

The enrollment flows “fail to clearly and conspicuously disclose material terms of the APM plan, including (1) that the length of the subscription term is one year, (2) that cancellation before the end of the first year is subject to an ETF, and (3) the amount of the ETF,” alleged the complaint.

The company’s enrollment practices have generated “frequent complaints” from APM plan subscribers on social media, Adobe community support web pages, and to the Better Business Bureau, said the complaint. Consumers reported not understanding what they were signing up for and being surprised to learn they were enrolled in a plan requiring a one-year commitment or risking a “hefty ETF,” it said.

Adobe auto-renews customers’ subscription plans and continues to charge them until they “affirmatively act to cancel their subscriptions” via online self-cancellation or by contacting customer service though online chat or phone, alleged the complaint. Neither cancellation method gives consumers "a simple way to cancel their subscriptions,” it said. When they cancel on Adobe.com, consumers have to “navigate numerous pages with multiple options," and much of the process is "wholly unnecessary to honor consumers’ cancellation requests,” alleged the complaint.

Clicking on the “cancel your plan” button “does not result in cancellation,” said the complaint. After users click that tab, Adobe “has forced them to undergo a convoluted process requiring several additional steps, some of which were wholly unnecessary to complete cancellation,” it said. In some cases, users wanting to cancel their plans had to “reenter their Adobe password” even if they had already signed in, it alleged.

Consumers wanting to a cancel a subscription have been sent to a “mandatory Feedback page, requiring them to provide reasons for cancellation"; this page “has not informed consumers that their cancellation request was incomplete,” the complaint said. Consumers have also had to wade through several web pages, pop-ups and “offers designed for retention,” it said. Consumers must review and confirm a “multitude of consequences that would follow the cancellation,” it said. At times, Adobe has placed in “prominent red font the ETF amount that APM plan subscribers would be charged if they cancelled their subscription,” it said.

Adobe offers no way to dispute the cancellation charge using the self-cancel flow, said the complaint. Subscribers either have to pay the fee to cancel “or reach out to Adobe’s customer service to discuss or dispute the fee,” it said. “If they chose the latter route, they could not complete self-cancellation,” it said.

Customers attempting to cancel a subscription via customer service have encountered obstacles that impede or delay their attempts, such as having calls dropped, having to re-explain their reason for calling when they reconnect, being transferred multiple times and having to re-explain their reason for calling multiple times, the complaint said. In “numerous instances,” subscribers who have requested cancellation via customer service “believe they have successfully cancelled but continue to be charged," it said. Some of these subscribers do not realize for months that Adobe is continuing to charge them, "and only learn about the charges when they review their financial accounts,” it said.

Adobe “obscures the ETF” during enrollment to a subscription but highlights it during cancellation, alleged the complaint. The company's “manipulative enrollment practices make the ETF an effective retention tool,” it said: “Since many APM plan subscribers do not know about the fee until they attempt to cancel, they are surprised and discouraged from cancelling upon learning about the fee and its amount, which can sometimes be several hundred dollars.”

The defendants have a “long history of continuous conduct” as described in the complaint, and they have continued to employ “at least some of their unlawful practices even after learning in 2022 about the FTC’s investigation into possible ROSCA violations relating to inadequate disclosures and complex cancellation mechanisms,” the complaint said. The defendants have repeatedly “decided against rectifying” some of the unlawful practices “because of the revenue implications,” it alleged.

DOJ, on the FTC's behalf, asserts claims of failure to clearly and conspicuously disclose material terms, failure to obtain express informed consent and failure to provide a simple cancellation mechanism. It seeks a judgment against Adobe for ROSCA violations, civil penalties, a permanent injunction to prevent future ROSCA violations and monetary and other relief from the court, it said.