Adobe anticipates ‘significant penalty’ for complex cancellation practices

Adobe is expecting to pay a significant penalty to the US Federal Trade Commission (FTC) to settle an investigation into its service cancellation practices, the company said in a filing with the Securities and Exchange Commission (SEC).

“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,” the firm wrote in the SEC filing.

The FTC has been using the Restore Online Shoppers’ Confidence Act to target Big Tech over negative billing and cancellation practices.

The Act mandates that subscription services must promptly honor cancellation requests, not limit cancellations to phone only, adequately staff customer service, simplify the cancellation process, and immediately accept and process cancellations before the next billing cycle.

Adobe did not disclose what specifically the FTC is targeting, but online forums are flush with people complaining that Photoshop and Premiere Pro have penalties for late cancellation.

In June, the FTC sued Amazon, alleging it enrolled customers in its Prime program without consent using deceptive designs and made canceling difficult.

Adobe shares dropped about 5% in after-hours trading on Wednesday following the filing and its announcement of lower revenue forecasts for 2024, overshadowing its recent achievement of over $5 billion in quarterly revenue and a net income of $1.48 billion.

During the company’s quarterly analyst call, analysts questioned the conservative 2024 guidance despite the massive AI tailwinds impacting the market broadly. Adobe’s CEO Shantanu Narayen highlighted this as Adobe’s highest annual and first-quarter guidance, reflecting strong growth ambitions while remaining conservative.

“We believe that every massive technology shift offers generational opportunities to deliver new products and solutions to an ever-expanding set of customers,” Narayen said during the call. “AI and generative AI is one such opportunity. We have delivered against this strategy and are pleased that a number of our groundbreaking innovations are now seeing tremendous usage by customers.”

More regulatory troubles for Adobe

Cancellations aren’t the only regulatory issue Adobe is facing, as regulators around the world, including the European Commission (EC), the Competition and Markets Authority (CMA) in the UK, and the US Department of Justice (DOJ), are pushing back against its acquisition of Figma.

“We remain excited about the strategic opportunity with Figma,” Narayen said. “The EC has provided a preliminary statement of objections, and the CMA has issued provisional findings of competition concerns.”

In November, the EU Commission published a Statement of Objections, outlining how an Adobe-Figma merger could potentially reduce competition in the global interactive product design software market.

In recent times, the DOJ and US market authorities have taken an increasingly stringent approach toward large corporate expansions, such as the FTC’s recent lawsuit seeking to prevent Microsoft’s nearly $69 billion acquisition of Activision Blizzard.

During the call, Adobe executives said that while the Justice Department has no formal timeline to decide on action against Adobe’s acquisition of Figma, the company anticipates a decision will be made soon.