Potentially thousands of Illinois residents, and many more people from throughout the U.S., - and their lawyers - could receive shares in tech firm Clearview AI, collectively worth up to 23% of the company's stock, under a "creative" new deal announced to end a group of sprawling class action lawsuits that accused Clearview of allegedly illegally scraping billions of photos of people's faces from the internet to create facial recognition databases used by police, retailers and others.
It is unknown as this point how much the total deal could be worth. However, court documents estimated about $51.7 million could be on the table. Lawyers could receive up to 39% of that total, or more than $20 million.
The settlement arrangement was presented to a federal judge in Chicago on June 12. If approved, it could bring to a close a court fight seeking to extract payment from Clearview for its alleged violations of Illinois' biometrics privacy law, privacy laws in California, New York and Virginia, and elsewhere in the U.S.
New York-based Clearview has been in court since 2020, defending itself against the lawsuits, which the federal courts consolidated into a single action pending in Chicago before U.S. District Judge Sharon Johnson Coleman, led by attorneys from the firm of Loevy & Loevy, of Chicago.
According to the lawsuits, Clearview scraped more than three billion photographs posted online, then used artificial intelligence to scan the facial geometry of people whose faces were imaged in those photos. The scans harvested unique biometric identifiers from the faces imaged in those photos, which Clearview then used to build databases to sell to law enforcement and others.
The lawsuit asserts these practices violated the Illinois Biometric Information Privacy Act and other laws. In Illinois, the actions claimed Clearview had been required to first get express permission from Illinois residents pictured in those photos before scanning their faces and to provide certain notifications concerning what Clearview intended to do with those scans.
Under BIPA, Clearview could have faced a potentially crippling payout worth hundreds of millions of dollars or more.
After years in court, the parties entered mediation, overseen by a former federal judge. In the brief outlining the settlement talks, the plaintiffs noted those talks were complicated by a number of issues. Most prominently, this included the potential for the lawsuits to financially ruin Clearview and leave no money available for any ultimate payment.
The document noted that Clearview was a "start-up company with few assets that could not possibly pay the amount of money needed to provide meaningful relief to the Class," adding: "Clearview was unlikely to stay in business while paying attorneys to defend it."
"Thus, Clearview and the Class members were trapped together on a sinking ship: the potential liability was massive, there was no money for a substantial settlement, and the costs of litigation itself would bankrupt Clearview before the case ever got to trial, leaving nothing for the Class members."
The plaintiffs further noted their settlement was complicated by another settlement Cleaview had already negotiated to end litigation lodged by the American Civil Liberties Union and others, accusing the company of violating the BIPA law's informed consent provisions. The ACLU and co-plaintiffs were represented in that action by attorneys from the firm of Edelson PC, of Chicago.
In the ACLU deal, reached in 2022, Clearview agreed to a permanent nationwide injunction barring it from allowing paid or free access to its database to any private entity or individual if that access doesn’t comply with BIPA.
It also agreed to not do business in Illinois until 2027 and agreed to deny paid or free access to the app to private entities in Illinois for the same window, even if that access might otherwise be allowed under BIPA.
The plaintiffs in the remaining lawsuits said the injunctions agreed to in the ACLU deal left them with little to seek against Clearview, besides money damages for the alleged violations of people's privacy rights.
With all of this in mind, the plaintiffs said the company and plaintiffs agreed to settle for a 23% ownership stake in the company, entitling plaintiffs and their lawyers to share in any profits, if and when the company goes public through an IPO.
Under the deal, plaintiffs' lawyers would receive 39% of the settlement.
From what is left, members of the plaintiffs' class from Illinous would receive 10 shares in the settlement each; class members from New York, California and Virginia would each receive five shares; and class members from everywhere else would receive one share each.
Under the deal, plaintiffs could instead potentially reap 17% of the company's revenue for a period beginning from the date the settlement receives final approval from the court until Sept. 30, 2027.
According to the June 12 filing, "the Class has the right to elect which of these payments it prefers."
"To address this state of affairs the sides worked together ... to forge a creative settlement structure, one that could obtain meaningful consideration for the Class members by giving Clearview the breathing room needed to become valuable and make a go of its business (with its practices modified to address the legal concerns raised by the Class)," the plaintiffs said in their June 12 filing.
Under the deal, the realization of the settlement would be overseen by a so-called "settlement master." The plaintiffs said the parties had agreed to appoint retired U.S. District Judge Sidney Schenkier to oversee the deal.
The settlement would empower Schenkier to decide if it is in the best interests of the Class to "sell the Class's rights to a third-party" and distribute the proceeds from that sale to the Class. The deal does not stipulate under what conditions such a sale might be approved, or who an appropriate third-party buyer might be. The June 12 filing said any deal must "necessarily exceed the equity-based options" under the stock deal.
Under the settlement, plaintiffs could also get paid by a liquidation of Clearview. The June 12 filing estimated that, were the company to be liquidated, plaintiffs could receive as much as $51.7 million, under the company's current estimated value.
Should plaintiffs' lawyers be paid from that liquidation value, they would receive about $20 million. However, their ultimate payout could be considerably higher, should Clearview proceed to a public sale of its stock.
In a published statement, Cleaview attorney Jim Thompson, of the firm of Lynch Thompson, said: "Clearview AI is pleased to have reached an agreement in this class action settlement."
Clearview was represented by Thompson and attorneys Daniel Lynch, of Lynch Thompson, of Chicago.
Plaintiffs were represented by attorneys Jon Loevy, Michael Kanovitz and Thomas M. Hanson, of the Loevy & Loevy firm, of Chicago.