US Government Sues Adobe Over Hidden Early Termination Fee

US Government Sues Adobe Over Hidden Early Termination Fee

When users attempted to cancel, Adobe created barriers and hit them with expensive "early termination fees" in an attempt to evade a lawsuit brought by the US government. The terms and conditions have been updated by the software company.

Manasi KambleUpdated: Wednesday, June 19, 2024, 04:50 PM IST
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Adobe Systems Incorporated, an American multinational computer software company, claims that the company that makes Acrobat and Photoshop hurts customers by hiding expensive cancellation fees in its most popular subscription plan and making it hard to stop subscriptions.

According to a Federal Trade Commission complaint filed in federal court in San Jose, California, Adobe hides the fees—which can occasionally total hundreds of dollars—and other important terms in its "annual paid monthly" subscription plan in the fine print or behind textboxes and hyperlinks.

The complaint claims that when customers cancel within the first year, Adobe charges early termination fees equal to 50% of the remaining payments.

Additionally, the FTC claimed that Adobe makes its subscribers who wish to cancel online go through needless pages, and that customers who cancel over the phone frequently get disconnected, have to repeat themselves to several agents, and experience "resistance and delay" from those agents.

David Wadhwani, president of digital media business at Adobe, and Maninder Sawhney, senior vice president of digital sales, are also named as defendants.

"Adobe trapped customers into year-long subscriptions through hidden early termination fees and numerous cancellation hurdles," said Samuel Levine, director of the FTC consumer protection bureau. "Americans are tired of companies hiding the ball during subscription signup and then putting up roadblocks when they try to cancel."

General counsel and chief trust officer Dana Rao of Adobe stated that the San Jose-based business will contest the FTC's allegations in court.

"Subscription services are convenient, flexible, and cost-effective, allowing users to choose the plan that best fits their needs, timeline, and budget," Rao said. "We are transparent with the terms and conditions of our subscription agreements and have a simple cancellation process."

In the quarter that ended on March 1, Adobe's revenue came from $5.18 billion, of which $4.92 billion, or 95%, came from subscriptions.

The Restore Online Shoppers' Confidence Act, a 2010 federal law that prohibits merchants from charging fees, including for automatic subscription renewals, unless they clearly disclose material terms and obtain customers' informed consent, was allegedly violated by Adobe, according to an FTC complaint.

The Lawsuit

The lawsuit filed on June 17 calls for various remedies, including civil penalties and an injunction to stop future wrongdoing.

U.S. v. Adobe Inc. et al. is the case in question; it is No. 24-03630 in the Northern District of California U.S. District Court.

Maninder Sawhney and David Wadhwani, two executives of Adobe Inc., are the targets of a civil enforcement action announced today by the Justice Department and the Federal Trade Commission (FTC) for alleged violations of the Restore Online Shoppers' Confidence Act (ROSCA). According to the lawsuit, millions of online subscribers were subjected to a hidden "Early Termination Fee" by the defendants, and Adobe made them go through a difficult cancellation process in order to discourage them from canceling subscriptions they no longer wanted.

Through its website, Adobe.com, software company Adobe Inc. provides online subscriptions for design and productivity software applications. Adobe's Vice President of Digital Go to Market & Sales is Maninder Sawhney, and its President of Digital Media Business is David Wadhwani.

In addition to monetary civil penalties and unspecified consumer redress, the lawsuit demands a permanent injunction to keep the defendants from violating the law in the future.

“The Justice Department is committed to stopping companies and their executives from preying on consumers who sign up for online subscriptions by hiding key terms and making cancellation an obstacle course,” said Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department’s Civil Division. “We will continue to enforce ROSCA against those who engage in such misconduct. No company, whether it is a small business or a member of the Fortune 500 like Adobe, is above the law.”

“Companies that sell goods and services on the internet have a responsibility to clearly and prominently disclose material information to consumers,” said U.S. Attorney Ismail J. Ramsey for the Northern District of California.  “It is essential that companies meet that responsibility to ensure a healthy and fair marketplace for all participants.  Those that fail to do so, and instead take advantage of consumers’ confusion and vulnerability for their own profit, will be held accountable.”

“Adobe trapped customers into year-long subscriptions through hidden early termination fees and numerous cancellation hurdles,” said Director Samuel Levine of the FTC’s Bureau of Consumer Protection. “Americans are tired of companies hiding the ball during subscription signup and then putting up roadblocks when they try to cancel. The FTC will continue working to protect Americans from these illegal business practices.”

Adobe's Enhanced Terms And Conditions

Adobe posted on X (formerly Twitter) with the caption informing about their enhanced terms and conditions. "Today we announced an update to our General Terms of Use for Creative Cloud and Document Cloud customers that makes the language easier to understand, including how we handle your content. Learn more on our website."

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