Adobe Inc (NASDAQ:ADBE) shares are trading lower after the company was legally challenged by the U.S. Federal Trade Commission, which is accusing the software giant and two of its executives, Maninder Sawhney and David Wadhwani, of deceptive practices related to its subscription cancellation policies.

The case, filed by the Department of Justice on behalf of the FTC, alleges significant consumer manipulation through Adobe’s subscription models.

The complaint asserts Adobe did not clearly disclose the hefty early termination fees associated with its “annual paid monthly” subscription plan.

This lack of transparency reportedly trapped consumers into costly year-long commitments.

Samuel Levine, director of the FTC's Bureau of Consumer Protection, criticized the company for obscuring the terms during the signup process and complicating the cancellation procedure to deter consumers from discontinuing their services.

Adobe responded to the FTC’s allegations. "Subscription services are convenient, flexible and cost effective to allow users to choose the plan that best fits their needs, timeline and budget,” Dana Rao, General Counsel and Chief Trust Officer said in response via press release. “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."

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Since shifting to a subscription-based model in 2012, Adobe has heavily promoted this plan, which contributed significantly to its revenue.

However, the FTC claims that Adobe’s marketing strategies are misleading, showing the monthly cost prominently while hiding the fact that canceling within the first year incurs a fee equivalent to 50% of the remaining balance.

Consumers have expressed frustration over these policies to both the FTC and the Better Business Bureau, with many stating they were unaware of the annual commitment and the associated termination fees.

The lawsuit further details the obstacles consumers face when trying to cancel, including complicated navigation through the Adobe website and uncooperative customer service tactics.

The case highlighted a broader issue of transparency and fairness in digital marketplaces, challenging Adobe's practices under the Restore Online Shoppers' Confidence Act.

Adobe reported second-quarter revenue of $5.31 billion and adjusted earnings of $4.48 per share, beating the consensus estimate of $5.292 billion and $4.39 per share respectively.

Adobe stock has gained about 6% in the last 12 months. Investors can gain exposure to the stock via IShares Expanded Tech-Software Sector ETF (BATS:IGV) and Invesco AI And Next Gen Software ETF (NYSE:IGPT).

ADBE Price Action: ADBE shares are trading lower by 1.911% at $519.46 at last check Monday.

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Disclaimer: This content was partially produced with the help of AI and was reviewed and published by Benzinga editors.

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