Clearview AI, recognized for its facial recognition tools, has agreed to settle a class-action lawsuit by earmarking part of its future valuation. Pending judicial endorsement, the agreement involves a fund equal to 23 percent of Clearview AI‘s worth as assessed last September. This fund becomes relevant if the company carries out an IPO or experiences a similar financial event.
Clearview AI's software has sparked considerable debate over privacy and the role of surveillance tech. Its use by law enforcement agencies has intensified concerns among privacy advocates regarding potential misuse and inadequate regulation. This settlement might influence how other tech companies facing related legal issues address financial constraints while meeting plaintiffs' demands.
Settlement Details and Conditions
Clearview AI must create a fund representing 23 percent of its valuation from the prior September. This fund will be activated in the event of an IPO or a significant financial occurrence like a merger or asset sale.
Estimates suggest this could total approximately $51.7 million. A special master will oversee the process, ensuring the class members get paid either by forcing Clearview AI to provide cash or by selling the settlement rights to a third party. This must occur by the deadline of September 30, 2027.
Legal Background and Initial Controversy
Clearview AI's legal troubles began when its method of harvesting publicly available photos for facial recognition was unveiled by the New York Times in 2020.
Subsequently, the company faced multiple lawsuits alleging privacy abuses, spearheaded by organizations such as the American Civil Liberties Union and several private individuals across the U.S. These individual lawsuits were merged into one class-action case in Illinois, leading to the proposed settlement without Clearview AI's opposition.
Financial Challenges and Settlement Strategy
Court documents point to Clearview AI's precarious financial status, indicating its limited assets and inability to handle a large cash settlement. The plaintiffs' lawyers highlighted the company's and class members' potential financial collapse, devising the equity-based settlement as a feasible resolution. Jon Loevy, representing the class, noted that recovering an amount potentially exceeding $50 million—though delayed—is a notable accomplishment.
The approach of relying on future equity highlights the fiscal instability of many tech startups, which often have valuable intellectual property but lack liquidity. This settlement strategy may become more prevalent as courts and plaintiffs seek creative solutions to intricate financial and legal challenges.
