Not a Good Look

Bummer of a birthmark, AdobeI have previously written about the Federal Trade Commission's investigation into the "Roach Motel" business practices of Adobe.

It looks like the process of discovery has revealed a rather damning communication between Adobe executives, where they likened the specifics of their subscription model to heroin.

This constitutes an admission by Photoshop publisher that they knew that their subscription model was deceptive, abusive, and exploitative.

Maybe the FTC should bring in the DoJ now, for some criminal prosecution:

Adobe's controversial billing practices and punitive fees for those terminating their subscriptions early follow from the software titan's addiction to revenue, the FTC has said.

In a newly unredacted [PDF] filing by the US watchdog in its lawsuit against the Photoshop maker, the FTC claims Adobe executives know its "inadequate ... disclosures" about its annual paid-monthly plans "harm and mislead consumers" but yet those execs "continue to engage in these unlawful practices because better disclosures would hurt Adobe's bottom line by reducing subscription revenues."

In other words, if Adobe was more upfront and clear about how its subscription plans truly worked, people would put away their wallets, and the biz would make less money, the FTC posits. One sticking point is the Illustrator giant's ETFs or early termination fees – what you have to pay to end an annual subscription before the year is out.

"As one Adobe executive admitted, the hidden ETF is 'a bit like heroin for Adobe' and 'there is absolutely no way to kill off ETF or talk about it more obviously [without] taking a big business hit,'" the regulator's complaint reveals.

Your honor, we find the defendants incredibly guilty.

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In June, the FTC sued Adobe alleging that the biz failed to adequately inform creative types about its subscription billing rules and the penalties charged for subscription cancellation during the signup process. The software house may disclose these details on its site, but they aren't made clear when being entered into, it is claimed.

The initial complaint [PDF] was substantially redacted.

But on Tuesday, the judge overseeing the case denied Adobe's July 3 motion to keep portions of the complaint sealed – a request subsequently trimmed to cover just some financial information and executive address information (which was ultimately expunged).

Adobe's attorneys explained its reduced secrecy demand thus: "Adobe is not seeking to seal the vast majority of information redacted in plaintiff's complaint because that information is false and therefore does not require sealing under this court's precedent."

Even Adobe's diminished redaction request was met with skepticism by the government attorneys handling the FTC case. In their objection [PDF], the feds argued that the financial information Adobe sought to withhold is general, would not present any competitive harm if disclosed, and is less telling than the developer's own public financial reports.

Paragraph 30 in the FTC complaint – which Adobe had sought to conceal – reveals that the annual paid-monthly (APM) "plan accounts for most of Adobe's subscription revenues."

The FTC argues that Adobe's subscription practices violated the Restore Online Shoppers' Confidence Act (ROSCA), a US e-commerce law enacted in late 2010. ROSCA requires clear disclosure of terms and disallows, among other things, certain "negative option features" – such as treating consumer inaction as a sign of consent.

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While the APM plan would seem to offer a monthly saving of $27.50 compared to the monthly plan, the fee for canceling the APM plan – potentially hundreds of dollars – would change that calculation. The fee is 50 percent of the remaining balance, so if you cancel with six months remaining, you would have to pay a penalty covering three months.

According to the FTC, Adobe designed its services to maximize those fees through interface design and other means.

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The crux of the case is that Adobe allegedly fails to properly explain to those purchasing annual software subscriptions, paid monthly, that customers will be charged a significant fee to terminate the subscription prematurely. 

Why yes, you should make a federal case out of this.