The US government is suing Adobe and two executives for allegedly hiding termination fees for software subscriptions and putting up “resistance and delay” when customers try to cancel – in a case that will have SaaS companies scrambling to assess their enrollment/cancellation flows.
The complaint comes days after Adobe's executives raised subscription targets and reported record quarterly revenues of $5.31 billion – exiting the quarter with $16.25 billion in "Digital Media" ARR as CEO Shantanu Narayanen promised to be "ruthlessly focused on continuing to execute."
Consumer watchdog the Federal Trade Commission filed the case against Adobe today. It alleges that “for years, Adobe has harmed consumers by enrolling them in its default, most lucrative subscription plan” whilst hiding “stealth” early termination fees (ETF) that are then used by the company as “a powerful retention tool [for] trapping consumers.”
Efforts to cancel Adobe subscriptions are convoluted and appear intended to deter customers, the FTC claimed; calls are often “dropped or disconnected”, and whilst its cancellation fee is hidden during enrolment, it is highlighted prominently in red font during cancellation, it alleged.
The case (United States of America vs. Adobe Inc.) also names as defendants Maninder Sawhney, SVP of Digital Go To Market & Sales at Adobe, and his boss David Wadhwani, President of Digital Media Business at Adobe – who reports directly to the company’s CEO, the FTC said.
The two “formulated, directed, controlled, had the authority to control, or participated in the acts and practices of Adobe, including acts and practices set forth in this Complaint” the consumer watchdog stated.
“Adobe trapped customers into year-long subscriptions through hidden early termination fees and numerous cancellation hurdles,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection in a release.
The case alleges, simply, that Adobe’s annual software subscription “enrollment flows fail to clearly and conspicuously disclose material terms of the APM [annual, paid monthly] 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.” (For US consumers the latter is 50% of the remaining contract obligation.)
The FTC complaint further alleges that the “defendants know about and have monitored numerous complaints received directly from consumers and from other sources like the BBB [Better Business Bureau] and they know that consumers are often confused about or misunderstand the terms of the APM plan, including its one-year commitment and ETF.”
“We are transparent with the terms and conditions of our subscription agreements and have a simple cancellation process," claimed Dana Rao, Adobe’s general counsel and chief trust officer, in the face of the legal complaint: "We will refute the FTC’s claims in court," he added.
The consumer watchdog alleged that to cancel Adobe "forced them [customers] to undergo a convoluted process requiring several additional steps, some of which were wholly unnecessary to complete cancellation.
Adobe is in breach of the FTC Act, 15 U.S.C. § 45(a), and ROSCA, 15 U.S.C. § 8403 which authorise the court to seek "permanent injunctive relief, rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, or other equitable relief, in addition to civil penalties."
