US sues Photoshop maker Adobe for hiding fees, making it difficult to cancel

By Jonathan Stempel

(Reuters) -The U.S. government sued Adobe on Monday, accusing the Photoshop and Acrobat maker of harming consumers by concealing hefty termination fees in its most popular subscription plan, and making it difficult to cancel subscriptions.

In a complaint filed in the San Jose, California, federal court, the Federal Trade Commission said Adobe buries the fees, which sometimes reach hundreds of dollars, and other important terms in its "annual paid monthly" subscription plan in the fine print, or behind textboxes and hyperlinks.

According to the complaint, Adobe calculates early termination fees as 50% of the remaining payments when consumers cancel in their first year.

The FTC also said Adobe forces subscribers who want to cancel online to navigate unnecessarily through numerous pages, while those canceling by phone are often disconnected, are forced to repeat themselves to multiple representatives, and encounter "resistance and delay" from those representatives.

Two Adobe executives are also defendants: David Wadhwani, the president of digital media business, and Maninder Sawhney, a senior vice president in digital sales.

"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."

Dana Rao, Adobe's general counsel and chief trust officer, said the San Jose-based company will refute the FTC's claims in court.

"Subscription services are convenient, flexible and cost effective to allow 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."

Subscriptions accounted for $4.92 billion, or 95%, of Adobe's $5.18 billion of revenue in the quarter ending March 1.

The FTC accused Adobe of violating the Restore Online Shoppers’ Confidence Act, a 2010 federal law barring merchants from imposing charges, including for automatic subscription renewals, unless they clearly disclose material terms and obtain customers' informed consent.

Monday's lawsuit seeks civil penalties, an injunction against further wrongdoing, and other remedies.

The case is U.S. v. Adobe Inc et al, U.S. District Court, Northern District of California, No. 24-03630.

(Reporting by Jonathan Stempel in New York; Editing by Aurora Ellis)