Adobe’s hidden early termination fee is ‘like heroin,’ exec says

Update:

• An unidentified company executive described the Adobe early termination fee as “a bit like heroin for Adobe,” according to an unredacted lawsuit shared July 25 by the Federal Trade Commission. 
• The executive allegedly acknowledged the hidden fee, imposed when subscribers attempt to cancel annual paid monthly subscriptions, is a significant source of revenue for the tech company. 
• In a statement, Adobe general counsel and Chief Trust Officer Dana Rao say the FTC is, “unfortunately taking four-year-old conversations and details from employee emails out of context to supplement their claims.”
• The FTC claims Adobe encouraged consumers to sign up for its annual paid monthly subscription plan for Acrobat, Photoshop and Illustrator software but did not adequately notify them of the one-year commitment and substantial early termination fee.

FTC Adobe lawsuit overview:

• Who: The U.S. Department of Justice filed a lawsuit against Adobe Inc.
• Why: Adobe allegedly misrepresents the terms of its “annual paid monthly” subscriptions and fails to notify consumers they will be faced with a hefty fee if they cancel early.
• Where: The FTC lawsuit was filed in California federal court.

(June 25, 2024)

A new Federal Trade Commission lawsuit claims Adobe Inc. fails to inform subscribers of an early termination fee if they cancel their “annual paid monthly” subscriptions before the year is up.

The FTC alleges Adobe encouraged consumers to sign up for the “annual paid monthly” subscription plan for its Acrobat, Photoshop and Illustrator software but failed to adequately notify them of the one-year commitment and substantial early termination fee, which can reportedly cost hundreds of dollars in some cases.

The Adobe lawsuit says subscribers are only notified about the early termination fee when they attempt to cancel their subscriptions, “turning the stealth [early termination fee] into a powerful retention tool” effectively “trapping consumers in subscriptions they no longer want.”

The FTC says Adobe conceals material terms of its annual paid monthly plans in fine print and hidden behind hyperlinks so most consumers never see them. Additionally, Adobe allegedly deters subscribers from canceling with its “onerous and complicated” cancellation process and its hefty early termination fee.

“Through these practices, Adobe has violated federal laws designed to protect consumers,” the FTC lawsuit says.

FTC lawsuit says Adobe pushes ‘annual paid monthly’ plan without proper disclosures

When consumers sign up for an Adobe subscription, they are offered a “monthly,” “annual paid monthly” or “annual prepaid” subscription plan, the FTC lawsuit explains.

The “annual paid monthly” plan is allegedly preselected as the default option unless the consumer chooses a different option. Under the “annual paid monthly” plan, Adobe reportedly  charges subscribers each month until they cancel, and charges an early termination fee equivalent to 50% of the remaining yearly contract payment obligation but fails to adequately inform consumers about this penalty before they commit to the subscription.

The FTC lawsuit alleges that Adobe’s conduct violates the Restore Online Shoppers’ Confidence Act by failing to provide clear and conspicuous disclosures about its subscriptions, failing to obtain express informed consent and failing to offer a simple cancellation process.

The FTC referred its complaint to the U.S. Department of Justice, which filed the Adobe lawsuit in California federal court on June 17.

Last year, Adobe agreed to pay $3 million to the U.S. government to settle claims it paid kickbacks to government-connected firms to encourage purchase of its software products.

Do you subscribe to Adobe software products? Let us know what you think of the FTC lawsuit in the comments.

The United States is represented by Brian M. Boynton, Arun G. Rao, Amanda N. Liskamm, Lisa K Hsiao, Zachary A. Dietert, Francisco L. Unger, Zachary L. Cowan, Wesline N. Manuelpillai and Amber M. Charles of the U.S. Department of Justice Civil Division; and Ismail J. Ramsey, Michelle Lo and David M. DeVito of the U.S. Attorney’s Office for the Northern District of California..

The FTC Adobe lawsuit is United States of America v. Adobe Inc., et al., Case No. 5:24-cv-03630, in the U.S. District Court for the Northern District of California.

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