Adobe warns it may face massive fines for subscription cancellation practices

Adobe has revealed it may have to fork out "significant monetary costs or penalties" as a result of a US Federal Trade Commission (FTC) investigation of its subscription cancellation practices.

The graphics giant slipped the news into a filing that details its Q4 and FY 2023 results and other corporate events.

Adobe's results were strong. The fourth quarter saw $5.05 billion of revenue, 12 percent year-over-year growth and the first time Adobe has reached the $5 billion mark in a single quarter. Quarterly net income reached almost $1.5 billion. Full year revenue was $19.4 billion, up ten percent year-over-year, and net profit reached $5.4 billion. CFO and executive veep Dan Durn hailed "world-class margins." President of digital media David Wadhwani celebrated record numbers of new commercial subscriptions for Adobe Creative Cloud. Execs forecast Q1 2024 revenue of between $5.1 and $5.15 billion, and annual revenue topping $21.3 billion.

But the FTC might kick a hole in predictions.

Adobe's filing reveals that the regulator is considering its actions regarding "our disclosure and subscription cancellation practices relative to the Restore Online Shoppers' Confidence Act."

That Act, as explained by law firm Hinch Newman LLP, means outfits that offer subscription services must never:

• Fail to promptly honor a request that complies with any policy to make refunds or allow cancellations'
• Force consumers to cancel by telephone only if they signed up online;
• Under-staff the customer service function;
• Make the cancellation process "drawn-out";
• Fail to cancel accounts after a request has been submitted.

The firm's interpretation of the Act is that it also requires operators to do the following:

• Timely terminate a consumer's enrollment in any plan or program with a negative option feature prior to the next billing cycle;
• Provide a no-cost mechanism for cancellation that is as simple to use and effective as the mechanism by which consumers purchase/enrol;
• Immediately accept a consumer's cancellation request.

Accounts of Adobe's unsubscribe process suggest it may sometimes attempt to charge a substantial cancellation fee, but questioning the legality of such charges quickly sees the idea abandoned.

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Adobe's filing reveals that in November 2023, 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."

Which sounds a lot like the FTC thinks Adobe was on the wrong side of the Act.

Adobe doesn't think it was. Its filing states "We believe our practices comply with the law and are currently engaging in discussion with FTC staff."

But it's warned investors that defending the matter – or paying fines if it can't do so – could cost it enough to "have a material impact on our financial results and operations."

Investors don't seem particularly troubled: Adobe shares dropped 1.5 percent after the bell, with the NASDAQ on which it's listed rising 1.38 percent for the day. ®