Early termination fees are “a bit like heroin for Adobe,” according to an Adobe executive quoted in the FTC’s newly unredacted complaint against the company for allegedly hiding fees and making it too hard to cancel Creative Cloud. “There is absolutely no way to kill off ETF or talk about it more obviously” in the order flow without “taking a big business hit,” this executive said.
That’s the big reveal in the unredacted complaint, which also contains previously unseen allegations that Adobe was internally aware of studies showing its order and cancellation flows were too complicated and customers were unhappy with surprise early termination fees.
In a short interview, Adobe’s general counsel and chief trust officer, Dana Rao, pushed back on both the specific quote and the FTC’s complaint more generally, telling me that he was “disappointed in the way they’re continuing to take comments out of context from non-executive employees from years ago to make their case.”
Rao added that the person quoted was not on the leadership team that reports to CEO Shantanu Narayen and that whether to charge early termination fees would “not be their decision.”
The early termination fees in the FTC case represent “less than half a percent of our annual revenue,” Rao told me. “It doesn’t drive our business, it doesn’t drive our business decisions.”
The FTC sued Adobe a little over a month ago, alleging that the company had failed to clearly and conspicuously disclose the early termination fee and also failed to have a simple process for canceling a Creative Cloud subscription. The majority of the FTC’s complaint is about early termination fees for annual Creative Cloud plans billed monthly — unlike a regular monthly subscription, these “annual billed monthly” plans have a significant fee if you cancel early, and the specific fee is not disclosed anywhere on the order screen. These plans have cheaper listed monthly prices than the regular monthly price (because they’re actually discounted annual plans), and they’re preselected on the order screen.
All of that, the FTC says, adds up to deceptively enrolling consumers in Adobe’s “default, most lucrative subscription plan without clearly disclosing important plan terms.”
The unredacted complaint reveals that Adobe executives discussed “a report that Forrester Research released in May 2022 which found most consumers had difficulty trying to determine how much they would be forced to pay if they cancelled.” The executives also “regularly discussed widespread consumer confusion and anger regarding the ETF and the APM plan’s one-year commitment,” according to the complaint, including “employees repeatedly acknowledging that Adobe has misled consumers by failing to clearly inform them of the ETF, and acknowledgment by executives that Adobe hides key disclosures where many consumers are unlikely to see them.”
Rao also pushed back on this claim, saying that Adobe had already started an overhaul of its subscription practices in October of 2021 and that the internal discussion of the Forrester report merely validated their approach. “The right people in the company were looking at it, they see the feedback, we go forward, and we push out all these changes in May of that same year when that report comes out.”
Adobe updated the design again in June 2023, Rao told me. “You can get out in 30 seconds if you want — it’s a four-step, industry-leading cancel flow.”
“It’s good for companies like us to get feedback, hear the feedback. It’s good for us to have employees raise comments and say, hey, Adobe, you should do better, we can do better. And then we look at it, we listen to it, and we take actions and we get better.”
I asked Rao why the order screen doesn’t just clearly display the termination fee, which would solve a lot of the FTC’s problems, and his explanation was that calculating and displaying that price isn’t easy since the fee is 50 percent of a customer’s remaining term. “It will always depend on when you cancel. That’s how the fee is determined.”
“We always have to balance the need to be clear and conspicuous with our terms — which is what we’re trying to do — with the number of things we need to be clear and conspicuous about. And so there’s a lot of things we can put into that box, but it’s not a big box,” Rao said. Moving everything out of tooltips and clickthroughs would result in “a very cluttered UI that is going to be more confusing to the consumer with a lot of boxes to check.” It seems likely that the FTC will challenge this claim specifically — the complaint notes that Adobe’s internal teams “have emphasized that the APM plan disclosures during the enrollment process are not clear, that many consumers are unaware of the ETF and the one-year term, and that these unclear disclosures lead to widespread consumer surprise and anger.”
Rao told me Adobe plans to challenge the FTC’s case on a number of fronts, but there’s one deeply 2024 twist in play: the heart of the FTC’s case is a law called the Restore Online Shoppers’ Confidence Act, or ROSCA, which requires that online stores “clearly and conspicuously disclose all material terms of the transaction” before obtaining the consumer’s billing information as well as provide “simple mechanisms for a consumer to stop recurring charges from being placed on the consumer’s credit card.”
Until last month, it was the FTC’s job to decide what “clearly and conspicuously” and “simple” meant. But that authority was just upended by the Supreme Court in a case called Loper Bright Enterprises v. Raimondo, which overturned a foundational legal principle called Chevron deference, which said courts should mostly defer to how agencies — like the FTC — interpret the law. The recent legal history of Chevron deference is long and winding, but the upshot is that Adobe can now argue directly to a court that its cancellation flow is, in fact, simple. Rao said Adobe feels that it has several good legal arguments before it gets to attacking the FTC’s interpretation of “simple,” but he’s thinking about it.
“Now we have a post-Chevron world, I think you can really take a look at when do you want to defer to the agency and when not to, and I think that’s definitely something that you have to think through,” Rao told me. It seems risky to have a member of the federal judiciary evaluate whether any subscription and cancellation flow is “simple,” but Rao seems confident.
“I look at a lot of cancellation flows that are out there. There’s people you can’t even cancel online, you have to call. That doesn’t seem simple at all. When you start talking about the the range of what a cancellation flow can and should be, we’ve always been in the category of good, and we want to be great.”
