Moving ahead: Details of the court-approved Clearview settlement

A federal judge in the Northern District of Illinois approved a settlement in the multidistrict litigation against Clearview AI.

The litigation started shortly after a New York Times article in early 2020 highlighted the company's alleged practices involving facial recognition technology and its growing list of government and private clients. According to the lawsuit, Clearview built an extensive database of face images by scraping photos from publicly available websites and recording individuals' facial features.

The plaintiffs proceeded with claims based on statutes and the common law from Illinois, California, New York, and Virginia, with the strongest claims under the Illinois Biometric Information Privacy Act. As the case progressed, it became evident that, although Clearview was a highly valued company, it lacked the liquid assets to pay a large lump-sum settlement or even sustain its ongoing defense. Given these circumstances, the parties devised a novel settlement structure that granted class members a 23 percent stake in Clearview. This settlement stake was valued at approximately $51.75 million, based on Clearview’s January 2024 valuation of $225 million. Four triggering events could activate the payment of the settlement equity stake to the class members:

• The occurrence of an initial public offering.
• The occurrence of a liquidation event, such as a merger, consolidation, or sale of all or substantially all of Clearview's assets.
• A payment by Clearview of an amount equal to 17 percent of Clearview's recognized revenue for the period beginning on the date of final settlement approval and ending with the election of this option, which will expire on September 30, 2027. The recognized revenue will be determined according to recognized Generally Accepted Accounting Principles.
• The amount that the Settlement Class will receive if it elects to sell its right to receive the Settlement Stake payment.

The settlement class has the right to choose which payout event they deem most advantageous through their chosen Settlement Master. Through the settlement agreement, the Settlement Master was granted certain powers to protect the class members' interests, including the following:

• The right to inspect Clearview's books and records upon providing reasonable notice.
• The right to request and receive biannual interviews with Clearview's management team.
• The right to receive information regarding the price and terms of any secondary sales of Clearview
• The right to sell the equity stake in Clearview if deemed in the best interest of the class.

Although the Court approved the settlement, questions remain. Because of the liquidated damages provisions of the Biometric Information Privacy Act, there are concerns about whether a settlement with an indefinite fund value accurately measures damages for BIPA violations. On the surface, it may appear that equity in a company is not “liquidated damages” within the meaning of the BIPA. However, the court did not address this question. Rather, the court focused on the lack of injunctive relief provided by the settlement and the fairness of the settlement.

Recent BIPA amendments, which limited the liquidated damages available to plaintiffs, seem to have reduced the threat of significant awards that might have prompted a “Clearview-like” settlement. In any event, for parties facing potentially overwhelming damages from BIPA litigation, the Clearview settlement offers a way for plaintiffs to secure compensation while preventing defendants from being overwhelmed by significant class actions.