Adobe sued in US over ‘hidden’ exit fees


US regulators have launched legal action against software giant Adobe for its deceptive cancelation policy that allegedly traps subscribers into continuing to pay for popular software products like Photoshop and Acrobat.

The case against the software giant, as well as two of its most senior executives, was initiated by the Federal Trade Commission overnight, and follows years of regulatory scrutiny.

The FTC claims Adobe pushes consumers towards an annual monthly subscription “without adequately disclosing that cancelling the plan in the first year could cost hundreds of dollars”.

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“Adobe trapped customers into year-long subscriptions through hidden early termination fees and numerous cancellation hurdles,” FTC Bureau of Consumer Protection director Samuel Levine said in a statement.

The Australian Competition and Consumer Commission (ACCC) will monitor the case and its outcomes for Australia, which represents a large cohort of users for the software maker despite gains by local competitor Canva in recent years.

“The ACCC is aware that the US FTC has launched legal action against Adobe regarding their subscription practices. We will monitor the case as it develop,” a spokesperson told InnovationAus.com.

Adobe, which plans to refute the claims in the US District Court in California, has offered subscriptions for software products like Photoshop, Acrobat and Illustrator since 2012, with subscriptions renewing automatically and paid for either monthly or yearly.

According to the complaint filed by the US Department of Justice on behalf of the FTC, Adobe pushes consumers to sign up to its “most lucrative” annual monthly subscription plan by default without “clearly disclosing important plan terms”.

“Adobe fails to adequately disclose to consumers that by signing up for the ‘Annual, Paid Monthly’ subscription plan, they are agreeing to a year-long commitment and a hefty early termination fee (ETF) that can amount to hundreds of dollars,” the filing said.

“Adobe clearly discloses the ETF only when subscribers attempt to cancel, turning the stealth ETF into a powerful retention tool that by trapping consumers in subscriptions they no longer want.”

The FTC said the cancellation fee is calculated at 50 per cent of the remaining contract obligation, leading to complaints from customers who report they were not aware of the fee.

It also alleges that Adobe and the two executives named in the compliant, president David Wadhwani and vice president Maninder Sawheny were aware of “significant government and regulatory scrutiny” but “persisted in its violative practices”.

Adobe was issued with a Civil Investigative Demand in mid-2022 probing “potential violations of the Restore Online Shoppers’ Confidence Act” in its annual subscription plan, according to the complaint.

By adopting a “convoluted process” that “ambushes subscribers” with an early cancellation fee, Adobe has made cancellation difficult for customers, the commission has alleged.

Consumers also report obstacles when they attempt to cancel, including “dropped calls and chats, and multiple transfers”. Some customers also alleged Adobe continued to be charged even after the subscriptions had been cancelled.

In a statement, Adobe general counsel and chief trust officer Dana Rao said the company’s is “transparent with the terms and conditions of our subscription agreements and have a simple cancellation process”.

“Subscription services are convenient, flexible and cost effective to allow users to choose the plan that best fits their needs, timeline and budget. Our priority is to always ensure our customers have a positive experience.”

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