Adobe Sued By U.S. Government Over Deceptive Trade Practices Involving Well Known Subscription Software

In a major new consumer protection related case, the United States of America, acting upon notification and referral from the Federal Trade Commission (FTC)...
United States Consumer Protection
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In a major new consumer protection related case, the United States of America, acting upon notification and referral from the Federal Trade Commission (FTC), has filed a comprehensive lawsuit against Adobe Inc., a global leader in software development, and two of its senior executives, Maninder Sawhney and David Wadhwani. This lawsuit, case number 5:24-cv-03630 in the Northern District of California, asserts claims under the FTC Act and the Restore Online Shoppers' Confidence Act (ROSCA), and aims to address alleged deceptive practices in Adobe's subscription services. Right now, it is assigned to Magistrate Judge Susan Van Keulen, but it is possible that the parties will not consent to a Magistrate Judge to oversee the case, and that the case will be reassigned to an Article III Judge. This blog post delves into the details of the lawsuit, the allegations, and the broader implications for consumer protection and corporate accountability. The case is also notable in that it names individual executives as defendants in the lawsuit, and seeks to hold them accountable for their alleged predatory conduct.

Background of the Case

Adobe Inc., known for its suite of design and productivity software such as Acrobat, Photoshop, Creative Cloud, and Illustrator, transitioned from a perpetual licensing model to a subscription-based model around 2012. This shift aimed to boost recurring revenue by locking customers into long-term subscription plans. According to the complaint, Adobe's revenue from subscriptions has seen a significant increase, nearly doubling from $7.71 billion in 2019 to $14.22 billion in 2023.

The Allegations

The lawsuit centers on Adobe's "Annual, Paid Monthly" (APM) subscription plan, which the United States claims involves deceptive practices that violate federal consumer protection laws. Here are the key allegations:

1. Lack of Clear Disclosure: Adobe allegedly enrolls consumers in its most lucrative subscription plan without clearly disclosing important terms. This includes the length of the subscription term (one year) and the hefty early termination fee (ETF) that consumers must pay if they cancel before the end of the year. The ETF, which can amount to hundreds of dollars, is reportedly disclosed only when consumers attempt to cancel their subscription.

2. Complicated Cancellation Process: The complaint asserts that Adobe employs an onerous and complicated cancellation process designed to deter consumers from canceling their subscriptions. This includes hiding material terms in fine print and behind hyperlinks, and requiring consumers to navigate through multiple unnecessary steps and retention offers before they can cancel.

3. Negative Option Features: The lawsuit highlights Adobe's use of "negative option features," where a consumer's silence or failure to reject goods or services is interpreted as acceptance. The FTC Act and the Restore Online Shoppers' Confidence Act (ROSCA) require clear and conspicuous disclosure of all material terms and the consumer's express informed consent before charging them. Adobe is accused of failing to meet these requirements.

4. Monitoring and Ignoring Complaints: Adobe is also accused of being aware of the consumer confusion and complaints regarding the APM plan but continuing to employ the same deceptive practices. The lawsuit references numerous complaints from consumers on various platforms, including the Better Business Bureau and social media, indicating widespread dissatisfaction with Adobe's subscription practices.

The Legal Basis

The United States brings this action under several sections of the FTC Act and ROSCA, which authorize the court to order permanent injunctive relief, rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief. The lawsuit seeks to address the following specific violations:

1. Failure to Clearly and Conspicuously Disclose Material Terms: Adobe's practices are alleged to violate ROSCA, which mandates clear disclosure of all material terms before obtaining the consumer's billing information.

2. Failure to Obtain Express Informed Consent: The complaint states that Adobe failed to obtain the consumer's express informed consent before charging their financial accounts.

3. Failure to Provide a Simple Cancellation Mechanism: Adobe is accused of not providing simple mechanisms for consumers to stop recurring charges, as required by ROSCA.

The Defendants

  • " Adobe Inc.: A Delaware corporation with its principal place of business in San Jose, California. Adobe is one of the largest software companies in the world, with a significant portion of its revenue coming from subscription-based services.
  • " Maninder Sawhney: Senior Vice President of Digital Go To Market & Sales at Adobe. Sawhney is alleged to have formulated, directed, controlled, and participated in the deceptive practices.
  • " David Wadhwani: President of Digital Media Business at Adobe. Wadhwani is also alleged to have played a significant role in Adobe's shift to the subscription model and the deceptive practices.

Impact and Broader Implications

This lawsuit has significant implications for both consumers and corporations. For consumers, it underscores the importance of transparency and fairness in subscription-based services. The case highlights the need for companies to clearly disclose all material terms and provide simple mechanisms for cancellation to protect consumer interests.

For corporations, especially those employing subscription models, the lawsuit serves as a cautionary tale about the risks of deceptive practices. It emphasizes the need for compliance with consumer protection laws and the potential consequences of failing to address consumer complaints and regulatory scrutiny.

Conclusion

The lawsuit against Adobe Inc. by the United States represents a critical moment in the ongoing battle for consumer rights and corporate accountability. As the case progresses, it will be closely watched by legal experts, consumer advocates, and businesses alike. The outcome could set important precedents for how subscription software services are marketed and managed, ensuring that consumers are treated fairly and transparently in their interactions with major corporations. Tactical Law would also like to see the government focusing on how small businesses in the United States are being taken advantage of by confusing

As we await further developments, one thing is clear: the case against Adobe highlights the vital role of regulatory bodies like the FTC in protecting consumers and enforcing laws designed to ensure fair business practices.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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