The U.S. government, through the Federal Trade Commission (FTC) and the Department of Justice, has sued Adobe Inc., its Senior Vice President Maninder Sawhney, and President of Digital Media David Wadhwani, alleging deceptive practices related to subscription plans.
Adobe is accused of concealing early termination fees (50% of remaining payments in the first year), steering customers towards expensive subscription plans, making it difficult to cancel subscriptions online or by phone, lacking clarity in the sign-up process regarding cancellation costs and hurdles, and burying termination fees in fine print and behind textboxes, trapping customers in year-long subscriptions.
The FTC alleged that Adobe trapped customers into annual subscriptions, prioritized profits over customer satisfaction, ignored complaints about canceling costly subscriptions, failed to provide a simple way to end subscriptions, caused harm to customers, and was aware of the barriers consumers faced when trying to cancel subscriptions but refused to modify its behavior due to revenue implications.
Adobe disputes the government's claims and states it is transparent about subscription terms, and conditions, and offers a simple cancellation process for customer satisfaction, with the company's general counsel Dana Rao stating they will challenge the FTC's claims in court.
Despite facing legal challenges, Adobe's stock experienced a surge after exceeding revenue and profit expectations, driven by strong growth in its cloud segments, including Creative Cloud, Document Cloud, and Experience Cloud, and analysts view Adobe as a reliable source of growth in the software industry due to AI-powered innovations driving user acquisition and an attractive outlook.
The lawsuit seeks civil penalties and an injunction against further wrongdoing, and the case is titled U.S. v. Adobe Inc et al, in the U.S. District Court, Northern District of California. The FTC claimed Adobe's "stealth ETF" may violate the Restore Online Shoppers' Confidence Act (ROSCA), which may prohibit Adobe's ETF as a "negative feature option" due to lack of clear disclosure prior to billing.
Adobe shifted from perpetual licenses to a subscription model in 2012, leading to significant revenue growth, with subscription-based revenue nearly doubling between 2019 and 2023, reaching $14.22 billion.
Sources: Reuters, CBS News, New York Times, Independent, CNBC, Ars Technica, Fox Business, New York Post, The Verge, Gizmodo, Engadget, MarketWatch, PCMag, Forbes, Mashable, ZDNet, Computerworld, and Japan CNET.
This article was written in collaboration with Generative AI news company Alchemiq.
