Tech News : Adobe Lawsuit : Customer Cancellation Concerns

The US Justice Department, together with the Federal Trade Commission (FTC), are suing Adobe Inc. (and two Adobe executives) over an alleged hidden “Early Termination Fee” and an alleged overly complex subscription-cancellation process.

Hiding Important Information 

In the complaint, filed in the U.S. District Court for the Northern District of California, it’s alleged that Adobe Inc systematically violated the Restore Online Shoppers’ Confidence Act (ROSCA) using fine print and inconspicuous hyperlinks to hide important information about Adobe’s subscription plans.

Using An Early Termination Fee As A Retention Tool? 

Allegedly, these violations include a significant “Early Termination Fee” that customers may be charged when they cancel their subscriptions, which Adobe may have profited from. The complainant says that this may amount to misleading Adobe’s consumers about the true costs of a subscription and “ambushing” them with the fee when they try to cancel, i.e. using the fee as a powerful retention tool.

Deterred From Cancellation By The Complexity Of The Process? 

The Justice Department / FTC complaint alleges that Adobe has also been violating ROSCA by not providing consumers with a simple mechanism to cancel their recurring, online subscriptions. Instead, it’s alleged, Adobe protects its subscription revenues by “thwarting subscribers’ attempts to cancel” and by “subjecting them to a convoluted and inefficient cancellation process filled with unnecessary steps, delays, unsolicited offers, and warnings”. It’s alleged, therefore, that the complexity of the cancellation process appears to be used to deter customers from cancelling (another retention tool).

Trapping Customers 

The Director of the FTC’s Bureau of Consumer Protection, Samuel Levine, summed up the complaint against Adobe, saying “Adobe trapped customers into year-long subscriptions through hidden early termination fees and numerous cancellation hurdles,” and that “Americans are tired of companies hiding the ball during subscription signup and then putting up roadblocks when they try to cancel”. 

Responsibility 

U.S. Attorney Ismail J. Ramsey for the Northern District of California highlighted how “Companies that sell goods and services on the internet have a responsibility to clearly and prominently disclose material information to consumers”.  He added that “It is essential that companies meet that responsibility to ensure a healthy and fair marketplace for all participants.  Those that fail to do so, and instead take advantage of consumers’ confusion and vulnerability for their own profit, will be held accountable.” 

Principal Deputy Assistant Attorney General Brian M. Boynton (head of the Justice Department’s Civil Division) also highlighted the importance of stopping “companies and their executives from preying on consumers who sign up for online subscriptions by hiding key terms and making cancellation an obstacle course”. 

What Does Adobe Say? 

In a statement on Adobe’s website, in answer to the allegations in the lawsuit, Adobe’s general counsel and chief trust officer Dana Rao denies the FTC’s claims and says Adobe will contest the charges in court.

Mr Rao says: “Subscription services are convenient, flexible and cost effective to allow users to choose the plan that best fits their needs, timeline and budget. Our priority is to always ensure our customers have a positive experience. We are transparent with the terms and conditions of our subscription agreements and have a simple cancellation process. We will refute the FTC’s claims in court.” 

Penalties 

The lawsuit seeks unspecified amounts of consumer redress and monetary civil penalties from the defendants, as well as a permanent injunction to prohibit them from engaging in future violations.

Not The Only Ones 

Adobe is, of course, not the only big tech company to have attracted the attention of the US Federal Trade Commission (FTC) in recent times. For example, earlier this month, the FTC filed a lawsuit against Amazon for allegedly enrolling customers in its Prime subscription service without their consent and making it difficult to cancel the subscription. The FTC accused Amazon of using “dark patterns” to mislead customers and hinder their attempts to unsubscribe easily

What Does This Mean For Your Business? 

The lawsuit against Adobe should be an important reminder for businesses about the importance of transparency and simplicity in subscription services. The allegations against Adobe highlight the potential risks and legal repercussions of not clearly disclosing all terms and conditions associated with subscription plans. UK businesses offering similar services must ensure that all subscription-related fees, particularly early termination fees, are clearly communicated to customers upfront to avoid misleading them.

The complexity of the cancellation process is another significant issue raised in the Adobe case. Businesses must create a straightforward and user-friendly cancellation process. Any attempt to complicate this process could be viewed as a strategy to retain customers unfairly, which could lead to legal challenges. Also, ensuring that customers can easily unsubscribe from services not only builds trust but also complies with consumer protection laws.

The involvement of two high-level executives in the Adobe lawsuit (David Wadhwani and Maninder Sawhney) highlights the accountability at all levels of an organisation. Business leaders should, therefore, be vigilant and ensure their company’s practices are transparent and compliant with regulations. This includes regularly reviewing and updating terms of service and cancellation policies to meet legal standards and customer expectations.

For UK businesses, this case also signals the increasing scrutiny from regulatory bodies worldwide, including the UK’s Competition and Markets Authority (CMA), which has similar oversight on consumer rights and business practices. Staying informed about both local and international regulations and aligning business practices accordingly can prevent potential legal issues.

The Adobe lawsuit, therefore, illustrates the crucial need for businesses to be transparent, honest, and straightforward in their dealings with customers. By adopting clear communication, simplifying processes, and ensuring compliance, UK businesses can foster better customer relationships and avoid costly legal disputes.

Featured Article : Subscription Sales Scrutiny

Following the news that US Federal regulators have sued Amazon, alleging that people have been “tricked” into buying hard-to-cancel Prime memberships, we take a closer look at ‘inertia selling’.

What Happened With Amazon Prime Subscriptions? 

Back at the end of June, the US Federal Trade Commission (FTC) announced that it was taking action against Amazon.com Inc, for “enrolling consumers in Amazon Prime without consent and sabotaging their attempts to cancel”. The FTC, which alleged that Amazon had been involved in this kind of inertia selling for years, went so far to say in its complaint that Amazon had been using “manipulative, coercive, or deceptive user-interface designs” which it describes as “dark patterns,” designed to “trick consumers into enrolling in automatically renewing Prime subscriptions.” 

The FTC Chair Lina M. Khan, said in the complaint: “These manipulative tactics harm consumers and law-abiding businesses alike.” 

Denial From Amazon

Amazon issued a statement in response, denying the TFC’s allegations, saying they were “false on the facts and the law” and that “The truth is that customers love Prime, and by design we make it clear and simple for customers to both sign up for or cancel their Prime membership.” 

Inertia Selling 

‘Inertia selling’ is a controversial sales technique which usually applies to a company sending unsolicited goods or services (or a subscription for services) to individuals with the expectation that they will buy or continue to buy the items. The idea is that the inertia of the consumer (i.e., the natural tendency of consumers to avoid taking action and stick with the default option) will mean that they either keep and pay for the item or to continue a subscription service, often without fully understanding the terms and conditions involved.

As the name suggests, this approach relies on the consumer’s inertia to drive sales, rather than obtaining explicit consent or agreement for the transaction.

Making Things Too Difficult 

In the recent complaint against Amazon by the FTC, it was alleged that making the option to purchase items on Amazon without subscribing to Prime was difficult for consumers to locate by not being clear in the transaction that in choosing that option consumers were also agreeing to join Prime for a recurring subscription. Also, the FTC alleged that when consumers tried to cancel Prime membership, they were faced with multiple steps, first having to locate the cancellation flow, and then being redirected to multiple pages that presented several offers to continue the subscription at a discounted price, turn off the auto-renew feature, or to decide not to cancel. The FTC said that only after clicking through these pages could consumers finally cancel the service. In other words, its alleged that consumers may have been tricked into consent in the first place and then the sheer complication of cancellation made consumers give up and opt for keeping the service.

Is It Illegal? 

Although these “dark patterns” (as described by the FTC) sound as though they must be illegal, it’s not quite as clear cut. Inertia selling is generally considered to be an unfair commercial practice under UK law, and it can be illegal. For example, UK consumer protection legislation like the Consumer Protection from Unfair Trading Regulations 2008, is designed to prevent unfair or deceptive practices, including inertia selling. These laws require that businesses provide consumers with clear, truthful information so they can make informed choices.

If a consumer in the UK receives unsolicited goods or services, they generally are under no legal obligation to pay for them. The law typically considers these unsolicited items to be gifts, and the consumer may not be required to return them. Also, companies must not demand payment for items that were not explicitly ordered as doing so could be considered an unfair commercial practice and may result in legal consequences.

However, for the consumer, it’s essential to carefully read the terms and conditions of any contract or agreement entered into, as there can be instances where the business has a legal basis for providing additional goods or services and charging for them. It appears, therefore, these situations can sometimes be nuanced.

Change Is Coming 

Although some areas of these practices may be nuanced, in April in the UK, the government announced that a new Bill will give the Competition and Markets Authority (CMA) new powers to clamp down on “subscription traps.” The changes will also require businesses to give consumers clearer information before they enter a subscription contract, issue a reminder when (for example) a free trial or low-cost introductory offer is coming to an end, and a reminder before a contract auto-renews onto a new term, and give consumers a straightforward way to exit a subscription contract.

In March this year, in the US, the FTC proposed a “click to cancel” provision requiring sellers to make it as easy for consumers to cancel their enrolment as it was to sign up. This change looks likely to help tackle hard-to-stop free trials, and auto-renewals (subscription traps).

In the EU, The CPC Network (coordinated by the European Commission) recently asked Mastercard, VISA and American Express to introduce a series of changes in their rules to ensure that traders provide clear information to consumers on recurrent payments before they enter into a subscription.

Others 

Inertia selling is not new but arguably, with the kind of subscription economy we now have, it may be easier for companies to use those practices. It’s worth noting that it’s not just Amazon that allegations of inertia selling of subscriptions have been made about. Other examples (and there are many more than these) include:

– Way back in 2013, when Adobe transitioned to its Creative Cloud subscription service, it received criticism about its subscription-only model and its cancellation policies.

– In 2015, Sky faced an Ofcom investigation for allegedly making it difficult for customers to cancel, e.g. cancellation requests not being “verified” without a call by the customer.

– In 2019, a Guardian newspaper report highlighted many companies which let customers sign up online but required a phone call to leave, e.g. Weight Watchers (WW), Ocado Smart Pass, British Gas Homecare, Which?, and others. The point was that requiring cancellation via phone call could be something that consumers forget.

– In 2020, the CMA took action against Roland for not making it sufficiently easy for online customers to cancel their digital piano rental agreements.

– Three, Vodafone, and EE all came under scrutiny from the CMA in the UK for the terms of their mobile phone contracts, some of which allegedly made it difficult for customers to switch providers or cancel their services.

– As in the US, gym chains in the UK have faced scrutiny for their cancellation policies. The CMA has now taken steps to ensure that gyms are transparent about their terms and conditions.

– In 2021, while the primary concerns with Viagogo (the multinational ticket exchange and ticket resale brand) surrounded ticket reselling, some consumers also complained about subscriptions that were difficult to cancel. This led to investigations and enforcement action by the CMA.

– Last year, as part of its investigation into the online console video gaming sector, the CMA identified concerns about some features of Microsoft’s auto-renewing subscriptions. For example, the CMA was particularly concerned about whether it was clear upfront that contracts would automatically renew, how easy it was to turn off automatic renewal, and whether people may not have realised they were still paying for services they no longer used.

What Does This Mean For Your Business? 

As we have moved more into becoming a subscription society, regulating all the practices has become more complicated. One of the chief concerns is how to protect consumers from business practices that essentially make the barriers to entry of a subscription contact incredibly low (or virtually invisible) and the barriers to exit extremely high through means such as excessive complication – two key characteristics of inertia selling.

In the US, UK, and EU matters such as hard-to-stop free trials, auto-renewals (subscription traps), and making consumers work hard to cancel are all being addressed with new proposed laws and new powers being given to regulators. For businesses offering subscriptions and wanting to avoid penalties, this will mean a review of their subscription process paying particular attention to clarity and options in sign-up and providing an easy way to cancel (with enough reminders along the way). Although Amazon is the latest to come under the regulatory spotlight it is by no means the only company to have been warned or had action taken against it by regulators over how subscriptions are sold, handled, renewed, or cancelled.

Although more legislation is in the pipeline and scrutiny more intense than ever, there is still some way to go in successfully tackling the many practices and nuances related to inertia selling. In the meantime, in the UK, customers who believe they have been the victim of inertia selling can report the practice to the CMA or their local Trading Standards office for further investigation.