Adobe sued by U.S. regulators for making it too difficult to cancel subscriptions

By Bill Peters

Software company responds that it is 'transparent with the terms and conditions of our subscription agreements and have a simple cancellation process'

U.S. regulators on Monday sued on Adobe Inc., accusing the software company and two executives of "deceiving consumers" by hiding the termination fee for a popular subscription plan and making it too difficult for customers to cancel subscriptions.

The allegations came in a federal court complaint filed by the Justice Department upon referral from the Federal Trade Commission, according to an FTC announcement. Adobe responded in a statement Monday that it would defend itself in court

Shares of Adobe (ADBE) finished Monday's regular trading session 1.3% lower.

The complaint alleges that Adobe - known for design tools like Photoshop and InDesign - steered online consumers to its "annual paid monthly" subscription option by preselecting that plan as a default.

The FTC also claims that Adobe "buries" disclosures related to its early-termination fee for that plan in the fine print or under icons that users have to hover their mouse cursor over to see. The agency says Adobe has used that fee - which amounts to half of the leftover monthly payments if a user cancels within their first year - to "ambush consumers to deter them from cancelling their subscriptions."

"When consumers have attempted to cancel their subscription on the company's website, they have been forced to navigate numerous pages in order to cancel," the FTC said.

"When consumers reach out to Adobe's customer service to cancel, they encounter resistance and delay from Adobe representatives," the agency continued. "Consumers also experience other obstacles, such as dropped calls and chats, and multiple transfers. Some consumers who thought they had successfully cancelled their subscription reported that the company continued to charge them until discovering the charges on their credit card statements."

The lawsuit seeks civil penalties and "unspecified amounts of consumer redress" from Adobe, and a permanent court order preventing the company from future violations, the Justice Department said.

The two executives named in the lawsuit are Maninder Sawhney, an Adobe vice president, and David Wadhwani, president of Adobe's Digital Media business. The complaint was filed in the U.S. District Court for the Northern District of California.

For more than a decade, Adobe has sold its software on a subscription basis; those subscriptions, the FTC said, make up most of its sales. However, more recently, analysts have been worried about steeper competition facing the company.

In a statement, Adobe disputed the allegations detailed in the complaint.

"We are transparent with the terms and conditions of our subscription agreements and have a simple cancellation process," Dana Rao, general counsel and chief trust officer at Adobe, said. "We will refute the FTC's claims in court."

The action is the latest from Biden administration regulators as they've looked to rein in merger deals and other corporate practices that they say stifle competition and harm consumers, many of whom are struggling with inflation.

Shares of Adobe are down 13% so far this year. However, shares got a boost last week following the company's quarterly results, which were helped by a more upbeat forecast for its Creative Cloud subscription offerings, which includes apps like Photoshop and Illustrator.

-Bill Peters

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06-17-24 1738ET

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