Adobe may be looking at significant costs or penalties after the US Federal Trade Commission launched a probe into the company’s disclosure and subscription cancellation policies.
In its 8K regulatory filing with the Securities Exchange Commission (SEC), Adobe stated:
Since June 2022, we have been cooperating with the Federal Trade Commission (“FTC”) staff in response to a Civil Investigative Demand seeking information regarding our disclosure and subscription cancellation practices relative to the Restore Online Shoppers’ Confidence Act. In November 2023, the FTC staff asserted that they had the authority to enter into consent negotiations to determine if a settlement regarding their investigation of these issues could be reached.
We believe our practices comply with the law and are currently engaging in discussion with FTC staff. The defense or resolution of this matter could involve significant monetary costs or penalties and could have a material impact on our financial results and operations.
Adobe subscribers must cancel within two weeks of buying a subscription to receive a full refund; otherwise, they incur a prorated penalty.
Click to cancel
In March, the FTC proposed ‘click to cancel’ regulation to ensure that consumers are able to cancel subscriptions as easily as they can sign up for them. FTC Chair Lina M. Khan said at the time:
Some businesses too often trick consumers into paying for subscriptions they no longer want or didn’t sign up for in the first place. The proposed rule would require that companies make it as easy to cancel a subscription as it is to sign up for one. The proposal would save consumers time and money, and businesses that continued to use subscription tricks and traps would be subject to stiff penalties.
The FTC proposal would include:
- A simple cancellation mechanism: If consumers are unable to easily leave any program when they want to, the negative option feature becomes nothing more than a way to continue charging them for products they no longer want. To address this issue, the proposed rule would require businesses to make it at least as easy to cancel a subscription as it was to start it. For example, if you can sign up online, you must be able to cancel on the same website, in the same number of steps.
- New requirements before making additional offers: The proposed rule would allow sellers to pitch additional offers or modifications when a consumer tries to cancel their enrolment. But before making such pitches, sellers must first ask consumers whether they want to hear them. In other words, a seller must take “no” for an answer and upon hearing “no” must immediately implement the cancellation process.
- New requirements regarding reminders and confirmations: The proposed rule would require sellers to provide an annual reminder to consumers enrolled in negative option programs involving anything other than physical goods, before they are automatically renewed.
Adobe is also facing regulatory attention in the UK and from the European Commission (EC) in relation to competition concerns around its proposed $20 billion acquisition of Figma. Adobe CEO Shantanu Narayen said:
We remain excited about the strategic opportunity with Figma, to jointly advance product design, accelerate collaborative creativity on the web, and redefine the future of creativity and productivity. We continue to engage with the European Commission, the Competition and Markets Authority (CMA) in the UK, and the US Department of Justice (DoJ), as they conduct their regulatory reviews.
The EC has provided a preliminary statement of objections and the CMA has issued provisional findings of competition concerns. We strongly disagree with these findings and are responding to the respective regulators. As per the current timelines, the EC's decision deadline is February 5th and the CMA’s is February 25th, while the DoJ does not have a formal timeline to decide whether to bring a complaint, we expect a decision soon.
The FTC revelation took the edge off a set of strong quarterly numbers that saw revenue rise above the $5 billion mark for the first time, up 12% year-on-year to $5.05 billion. Net income was up from $1.18 billion a year ago to $1.49 billion. Creative Cloud revenue was up 14% year-on-year to $3 billion, Experience Cloud was up 12% to $1.27 billion, while Document Cloud was up 17% to generate $721 million.
Clearly the outcome of the FTC probe mustn’t be pre-judged. What can be confidently stated is that complaints from customers about Adobe’s cancellation policies have been rife for years as a quick Google search will confirm. This investigation, plus the UK and European inquiries, bring 2023 to a less than gilded end for the company.
For his part Narayen remains upbeat about 2024:
There is nothing as it relates to the economic indicators that we saw anything that would give us cause for concern…nothing that we see on the horizon would tell us either from the economic or competition, that we're not poised to have another great year and profitability as well…so I feel really good.
Time will tell.