An interesting decision came out of the United States District Court for the Northern District of California that involved a liquidated damage clause. The plaintiff purchased an annual subscription to a suite of software services called the “Adobe Creative Cloud” (referred to hereafter as the Creative Cloud) for $49.00 per month from the defendant, a multi-national software maker. Shortly thereafter, the plaintiff cancelled his subscription and paid a 50 percent cancellation fee, as per the contract, which contained an early termination fee provision. The provision stated: “We’d hate to see you go, but if you cancel within the first 30 days, we’ll give you a full refund. Otherwise, you’ll be billed 50 percent of your remaining contract obligations.”
The plaintiff filed the lawsuit claiming that the cancellation fee violated the California Civil Code §1671(d) because it was an unlawful liquidated damages provision, and therefore was void and unconscionable. The plaintiff further contended that because the Creative Cloud was void under §1671(d), it was an unconscionable contract provision, prohibited by California Consumer’s Legal Remedies Act, Civil Code §1750.