Clearview AI reaches 'creative' settlement with privacy suit plaintiffs: A conditional IOU

Biz too broke, class too big to settle now; agrees to pay in limited circumstances like an IPO, liquidation

Unable to afford a settlement with "virtually anyone in the United States whose face appears on the internet," data-scraping facial recognition firm Clearview AI has decided that an IOU for a chunk of the company's future value will have to do. 

Under the terms of the settlement [PDF], which still needs final court approval, Clearview AI will set aside a common fund that it would fill with the monetary equivalent of 23 percent of the company's value as of last September - under certain conditions, that is. The common fund will only be filled if the company undertakes an IPO or "deemed liquidation event" like a merger, asset sale or the like. 

Total relief based on Clearview's current valuation, court documents note, would mean a fund worth as much as $51.7 million. 

If that makes it sound like class members my never see a dime, there's an extra provision in the settlement to increase the odds: It also calls for the appointment of a special master who has the right to make a cash demand from Clearview or to sell settlement rights to a third party with proceeds to go to class members. Both of those conditions have a drop-dead date of September 30, 2027. 

It's not immediately clear what would happen if both Clearview and the special master chose not to act by the 2027 termination date. We've asked both sides, but haven't heard back on that point. 

How Clearview AI ended up in this mess

Clearview is a startup that has created facial recognition software that combs the internet to collect publicly available photos of people to build its database. The company has been mired in controversy since the New York Times broke news of its existence in 2020. Lawsuits soon began pouring in, from groups including the American Civil Liberties Union and private citizens in states around the US who accused the company of violating their privacy rights. 

Those cases were eventually consolidated into a single class-action case in Illinois, where lawyers for the class filed a proposed settlement order - unopposed by Clearview - this week. The filing paints a picture of a company struggling to stay afloat in the face of mounting legal costs.

"Clearview was a startup company with few assets that could not possibly pay the amount of money needed to provide meaningful relief to the Class," lawyers for the plaintiffs said in the settlement proposal. 

"Clearview and the Class members were trapped together on a sinking ship," the proposal continues. "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."

To make up for the fact that it doesn't have any money, and likely will not if the case went to trial, lawyers for the plaintiffs were forced to get creative, said lawyer Jon Loevy, a representative of the class members and one of the authors of the settlement filing. 

"Against these uncertainties, recovery of a settlement that may exceed $50 million is a fantastic result for the Class, even if the gratification is necessarily delayed," the court filing argues.

In a statement sent to The Register on behalf of ClearviewAI, Jim Thompson, Partner at Lynch Thompson LLP, said: "Clearview AI is pleased to have reached an agreement in this class action settlement." ®

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