A facial recognition start-up, accused of invasion of privacy in a class-action lawsuit, has agreed to a settlement, with a twist: Rather than cash payments, it would give a 23 percent stake in the company to Americans whose faces are in its database.
Clearview AI, which is based in New York, scraped billions of photos from the web and social media sites like Facebook, LinkedIn and Instagram to build a facial recognition app used by thousands of police departments, the Department of Homeland Security and the F.B.I. After The New York Times revealed the company’s existence in 2020, lawsuits were filed across the country. They were consolidated in federal court in Chicago as a class action.
The litigation has proved costly for Clearview AI, which would most likely go bankrupt before the case made it to trial, according to court documents. The company and those who sued it were “trapped together on a sinking ship,” lawyers for the plaintiffs wrote in a court filing proposing the settlement.
“These realities led the sides to seek a creative solution by obtaining for the class a percentage of the value Clearview could achieve in the future,” added the lawyers, from Loevy + Loevy in Chicago.
Anyone in the United States who has a photo of himself or herself posted publicly online — so almost everybody — could be considered a member of the class. The settlement would collectively give the members a 23 percent stake in Clearview AI, which is valued at $225 million, according to court filings. (Twenty-three percent of the company’s current value would be about $52 million.)
If the company goes public or is acquired, those who had submitted a claim form would get a cut of the proceeds. Alternatively, the class could sell its stake. Or the class could opt, after two years, to collect 17 percent of Clearview’s revenue, which it would be required to set aside.
The plaintiffs’ lawyers would also be paid from the eventual sale or cash-out; they said they would ask for no more than 39 percent of the amount received by the class. (Thirty-nine percent of $52 million would be about $20 million.)
“Clearview AI is pleased to have reached an agreement in this class-action settlement,” said the company’s lawyer, Jim Thompson, a partner at Lynch Thompson in Chicago.
The settlement still needs to be approved by Judge Sharon Johnson Coleman of U.S. District Court for the Northern District of Illinois. Notice of the settlement would be posted in online ads and on Facebook, Instagram, X, Tumblr, Flickr and other sites from which Clearview scraped photos.
While it seems like an unusual legal remedy, there have been comparable situations, said Samuel Issacharoff, a New York University law professor. The 1998 settlement between tobacco companies and state attorneys general required the companies to pay billions of dollars over decades into a fund for health care costs.
“That was being paid out of their future revenue streams,” Mr. Issacharoff said. “States became beneficial owners of the companies moving forward.”
Jay Edelson, a class-action lawyer, is a proponent of “future stakes settlement” in cases involving start-ups with limited funds. Mr. Edelson has also sued Clearview AI, alongside the American Civil Liberties Union, in a state lawsuit in Illinois that was settled in 2022, with Clearview agreeing not to sell its database of 40 billion photos to businesses or individuals.
Mr. Edelson, though, said there was an “ick factor” to this proposed settlement.
“Now you have people who are injured by Clearview trampling on their privacy rights becoming financially interested in Clearview finding new ways to trample them,” he said.
Evan Greer, director of Fight for the Future, a privacy advocacy organization, was also critical.
“If mass surveillance is harmful, the remedy should be stopping them from doing that, not paying pennies to the people who are harmed,” Ms. Greer said.