A facial recognition startup facing a class action lawsuit over privacy allegations has agreed to a settlement with an interesting twist: giving Americans whose faces are in its database a 23% stake in the company rather than a cash payment.
New York-based Clearview AI has developed a facial recognition app that compiles billions of photos from the web and social media sites, including Facebook, LinkedIn and Instagram, and is used by thousands of police departments, the Department of Homeland Security and the FBI. After the company's existence was exposed by The New York Times in 2020, lawsuits were filed across the country and consolidated as a class action in federal court in Chicago.
Court documents say the litigation will be costly for Clearview AI and will likely bankrupt the company before the trial even begins. In court filings proposing a settlement, plaintiffs' lawyers wrote that the company and its lawsuits are “trapped on a sinking ship.”
“These realities have led the parties to seek a creative solution to capture for the class a percentage of the future value that Clearview may realize,” added the lawyers from Chicago law firm Loevy + Loevy.
Anyone in the United States who posts photos of themselves online could potentially be considered part of the class, which is pretty much everyone. With the settlement, each member of the class will get 23% of Clearview AI, which has a market capitalization of $225 million, according to court documents. (23% of the company's current market capitalization is about $52 million.)
If the company goes public or is acquired, those who filed claims would get a share of the proceeds, or the class could sell its shares. Alternatively, the class could choose to collect 17% of Clearview's revenue after two years, which it must set aside.
The plaintiffs' lawyers will also be paid from any eventual sale or liquidation. They said they will seek no more than 39% of whatever the class receives (39% of $52 million would be about $20 million).
“Clearview AI is pleased to have reached an agreement to settle this class action lawsuit,” said Jim Thompson, a partner at the Chicago law firm Lynch Thompson and the company's attorney.
The settlement still must be approved by Judge Sharon Johnson Coleman of the U.S. District Court for the Northern District of Illinois. Notice of the settlement will be placed in online ads and on sites where Clearview collected the photos, including Facebook, Instagram, X, Tumblr and Flickr.
While this seems like an unusual legal remedy, New York University law professor Samuel Issacharoff says similar situations have occurred before: A 1998 settlement between tobacco companies and state attorneys general required the companies to pay billions of dollars into Medicaid funds over decades.
“It was paid for from future revenue sources,” Issacharov said. “From now on, the state will be the beneficial owner of the company.”
Class action lawyer Jay Edelson has advocated for “future interest settlements” in cases involving startups with limited funding. Edelson also filed a lawsuit in Illinois against Clearview AI with the American Civil Liberties Union. The case was settled in 2022, with Clearview agreeing not to sell its database of 40 billion photos to companies or individuals.
But Edelson said there were “unsavory elements” to the proposed settlement.
“Those who have been harmed by Clearview's violations of their privacy rights now have a financial interest in Clearview finding new ways to violate those rights,” he said.
Evan Greer, director of privacy advocacy group Fight for the Future, was also critical.
“If mass surveillance is harmful, the answer is to stop it, not to pay small amounts to the people who are affected,” Greer said.