Adobe's controversial billing practices and punitive fees for those terminating their subscriptions early follow from the software titan's addiction to revenue, the FTC has said.
In a newly unredacted [PDF] filing by the US watchdog in its lawsuit against the Photoshop maker, the FTC claims Adobe executives know its "inadequate . disclosures" about its annual paid-monthly plans "harm and mislead consumers" but yet those execs "continue to engage in these unlawful practices because better disclosures would hurt Adobe's bottom line by reducing subscription revenues."
In other words, if Adobe was more upfront and clear about how its subscription plans truly worked, people would put away their wallets, and the biz would make less money, the FTC posits. One sticking point is the Illustrator giant's ETFs or early termination fees – what you have to pay to end an annual subscription before the year is out.
"As one Adobe executive admitted, the hidden ETF is 'a bit like heroin for Adobe' and 'there is absolutely no way to kill off ETF or talk about it more obviously [without] taking a big business hit,'" the regulator's complaint reveals.
Adobe disputes the FTC's allegations and has done so publicly. An executive who spoke to The Register on condition of anonymity – owing to the sensitive nature of public comment amid litigation – suggested the federal agency is simply cherry-picking provocative discovery material to prop up an otherwise deficient lawsuit. The individual who made the "heroin" comparison isn't on the executive team, we're told.
What's more, Adobe contends many of the business practices at issue have since been revised. The InDesign maker, which spells out its cancellation fees here and here at least, considers its subscription business model to be one that makes its software more widely available than it would be otherwise.
In June, the FTC sued Adobe alleging that the biz failed to adequately inform creative types about its subscription billing rules and the penalties charged for subscription cancellation during the signup process. The software house may disclose these details on its site, but they aren't made clear when being entered into, it is claimed.
The initial complaint [PDF] was substantially redacted.
But on Tuesday, the judge overseeing the case denied Adobe's July 3 motion to keep portions of the complaint sealed – a request subsequently trimmed to cover just some financial information and executive address information (which was ultimately expunged).
Adobe's attorneys explained its reduced secrecy demand thus: "Adobe is not seeking to seal the vast majority of information redacted in plaintiff's complaint because that information is false and therefore does not require sealing under this court's precedent."
Even Adobe's diminished redaction request was met with skepticism by the government attorneys handling the FTC case. In their objection [PDF], the feds argued that the financial information Adobe sought to withhold is general, would not present any competitive harm if disclosed, and is less telling than the developer's own public financial reports.
Paragraph 30 in the FTC complaint – which Adobe had sought to conceal – reveals that the annual paid-monthly (APM) "plan accounts for most of Adobe's subscription revenues."
Adobe offers various software subscription options for its suite of creative applications. For its Creative Cloud All Apps subscription, as of May 2023, for example, Adobe presented three options: Annual, paid monthly ($54.99/month); Annual, prepaid ($599.88/year); and Monthly ($82.49/month).
While the APM plan would seem to offer a monthly saving of $27.50 compared to the monthly plan, the fee for canceling the APM plan – potentially hundreds of dollars – would change that calculation. The fee is 50 percent of the remaining balance, so if you cancel with six months remaining, you would have to pay a penalty covering three months.
According to the FTC, Adobe designed its services to maximize those fees through interface design and other means.
While APM revenue as a whole is material to Adobe, early termination fees arising from canceled APM subscriptions represent a very small portion of the app goliath's overall revenue.
In response to an inquiry from The Register about the information revealed in the unredacted complaint, Dana Rao, general counsel and chief trust officer at Adobe, said:
Providing consistent innovation through flexible subscription plans that fit different needs, timelines and budgets is the best way to serve millions of customers. We strongly disagree with this lawsuit's characterization of our business and we will refute the FTC's claims in court. The complaint is taking an offhand comment out of context from years ago, out of the tens of thousands of documents Adobe provided to the FTC. The early termination fees equate to minimal impact to our revenue, accounting for less than half a percent of our total revenue globally, but is an important part of our ability to offer customers a choice in plans that balance cost and commitment.
The crux of the case is that Adobe allegedly fails to properly explain to those purchasing annual software subscriptions, paid monthly, that customers will be charged a significant fee to terminate the subscription prematurely.
The FTC argues that Adobe's subscription practices violated the Restore Online Shoppers' Confidence Act (ROSCA), a US e-commerce law enacted in late 2010. ROSCA requires clear disclosure of terms and disallows, among other things, certain "negative option features" – such as treating consumer inaction as a sign of consent.
Adobe in a statement last month declared it would challenge the FTC's claims in court and insisted that it strives to have a positive customer experience. "We are transparent with the terms and conditions of our subscription agreements and have a simple cancellation process," said Rao at the time.
The newly revealed text sheds more light on the tactics Adobe is accused of using to keep customers paying for costly subscriptions. For example, the previously concealed paragraph 5 reads:
Adobe's misconduct does not stop with concealing key APM plan terms to maximize profits. Adobe utilizes other onerous cancellation procedures to trap consumers in subscriptions they no longer want. Consumers attempting to cancel online are forced to navigate numerous hurdles, including hidden cancellation buttons and multiple unnecessary steps such as pages devoted to password reentry, retention offers, surveys, and warnings. Consumers attempting to cancel via phone or chat experience dropped calls and chats, significant wait times, and repeated transfers. Adobe uses a dedicated 'Retention' team to discourage subscribers who try to cancel. Adobe relies on such obstacles to thwart cancellations and retain subscription revenues, depriving consumers of a simple mechanism to cancel as required by law.
Subsequent disclosed passages provide more detail about the alleged roles played by the two Adobe executives named in the case: Maninder Sawhney, senior vice president of digital go to market & sales, and David Wadhwani, president of digital media business.
The Register understands that Adobe considers the inclusion of these two executives to be mainly a way to make the case seem more substantial, since the complaint doesn't articulate any independent theory of liability. The California behemoth's position is that the two were simply doing their jobs.
Further on in the complaint, the newly revealed paragraph 53 contends that Adobe's enrollment flow – the sequence of web pages and interactions to subscribe – failed to display the terms and conditions for certain business and education customers, only presenting that information after payment had been made.
Other newly revealed passages include details about how folks perceive Adobe's practices – at least according to the FTC.
The previously hidden final sentence of paragraph 55 states: "The ETF and related confusion have been top drivers of customer support contacts, dissatisfied customers, and customer inquiry escalations at Adobe."
And paragraphs 57 and 58 claim the company and defendant executives have resisted external and internal pressure to remedy the situation "because Adobe has profited handsomely from these practices." It continues:
Defendants have also faced outside pressure to change their enrolment practices, including, for example, from a report that Forrester Research Inc released in May 2022, which found most consumers had difficulty trying to determine how much they would be forced to pay if they canceled a subscription. Defendants know that Adobe employees and executives have also internally expressed concern about consumer confusion and harm caused by Adobe's enrolment practices.
Further passages detail alleged efforts by Adobe to make it more difficult for customers to cancel subscriptions. And they also quote messages from customers, such as this email complaint sent to Adobe's CEO Shantanu Narayen:
I am desperate. I no longer know how to get help. I am writing for the umpteenth time … I have made written online requests galore, I have made four phone calls to Adobe's advertised phone numbers. I get no help online and no help by phone. Instead I spend an hour being transferred from one person to another and eventually being hung up on. … What does it take to cancel the subscription?
As the government's case proceeds, we may find out. ®