Class action litigation against biometric technology manufacturers and vendors is on the rise. Several courts have recognized the viability of such claims and held manufacturers/vendors may be subject to liability under Sections 15(b) and 15(d) of the Illinois Biometric Information Privacy Act (“BIPA”). 740 ILCS 14/15(b) & (d); Figueroa v. Kronos Inc., 454 F. Supp. 3d 772, 784-86 (N.D. Ill. 2020). The merits of these BIPA claims are yet undetermined. But the risk of having to defend such claims in state and federal courts is real and ongoing.
As the saying goes, the best defense is good offense. Rather than face uncertain liability, or incur exorbitant litigation defense costs, potential BIPA defendants often turn to arbitration provisions. For manufacturers/vendors of biometric technology, however, this approach may not be that simple.
Unlike typical BIPA defendants who offer services directly to putative plaintiffs, manufacturers/vendors are often one step removed. Since most manufacturers/vendors are not in direct privity with the end user, securing contractual protection via an arbitration provision becomes complex. Ironically, it may be that the service provider offering the manufacturer’s technology to the end user can condition said use on an arbitration agreement; the manufacturer/vendor itself, however, which has no such contract with the end user, is left to defend these same BIPA claims in court.
That is exactly what happened in Sosa v. Onfido, Inc., a recent Seventh Circuit case. 8 F.4th 631, 634 (7th Cir. 2021). There, the marketplace app OfferUp incorporated biometric technology provided by Onfido Inc. to register user identities on its app. The plaintiff, an OfferUp user, filed a BIPA class action against Onfido, alleging it collected his biometric identifiers without consent. While OfferUp protected itself with an arbitration clause in its Terms of Service that encompassed “any and all disputes”—and was not named in the BIPA lawsuit—Onfido was forced to defend against class action litigation.
Onfido sought the protection of OfferUp’s arbitration provision—but to no avail. Because Onfido had no contractual relationship with the plaintiff, and failed to establish a right to enforce OfferUp’s arbitration provision as a third-party beneficiary of the Terms of Service, as an agent of OfferUp, or on equitable grounds, the Seventh Circuit affirmed the district court’s denial of Onfido’s motion to compel arbitration.
Class Action Litigation Defense Strategies: Bargain for Third-Party Beneficiary Status in Underlying Service Contracts
Biometric technology vendors/manufacturers can take steps to secure the protection of an underlying arbitration provision in Terms of Service agreements and other contracts. As the Seventh Circuit recognized, OfferUp’s failure to identify Onfido as a third-party beneficiary to its Terms of Service was fatal. But manufacturers/vendors can contract for third-party beneficiary status—particularly when it comes to securing protections provided by arbitration provisions.
To avoid the pitfalls that precluded Onfido from extricating itself from the BIPA class action filed against it, vendors and manufacturers should keep in mind the following considerations:
- Secure third-party beneficiary status in Terms of Service Agreements and other contracts in which a service provider contracts directly with an end user of the manufacturer/vendor’s biometric technology.
- Be aware of the operative state law requirements to obtain third-party beneficiary status in a contract. For example, under Illinois law (which was at issue in Sosa), courts require the third-party beneficiary be identified either by name or to a class for which it belongs. 8 F.4th at 639 (emphasis added).
- Draft third-party beneficiary provision with specificity to avoid doubt about the scope of third-party rights. Include provisions that state not only the manufacturer/vendor is a third-party beneficiary of the entire contract, but also that they are a third-party beneficiary to arbitration clause itself.
The Final Word
BIPA litigation against manufacturers/vendors is emerging and it shows no sign of slowing down. But manufacturers/vendors can still try to pump the breaks on this trend by securing protections of contractual arbitration clauses as third-party beneficiaries to direct these disputes toward individual arbitration.