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Wired: Disney deal with Character.AI tied to Chapter 11 filing
Wired, citing bankruptcy filings, reports Disney hired most Character.AI staff in September and seeks a license to its technology after the chatbot startup filed for Chapter 11 on Oct. 12; Disney declined to comment.
Disney hired a majority of Character.AI's employees in September and is seeking a license to much of the chatbot company's technology through Chapter 11 proceedings that began Oct. 12, Wired reported Sunday, citing court filings1.
According to those filings as described by Wired, Disney paid Character.AI $5.5 million plus a $2 million refundable deposit, hired most of the staff including then-CEO Karandeep Anand, and agreed that some of those employees could help keep Character.AI running for five months1. Character.AI's counsel said Disney required the arrangement to be "fully consummated" through bankruptcy because of dwindling cash and litigation and regulatory risk1.
A Character.AI spokesperson referred Wired to Disney on whether the deal depended on a bankruptcy filing; Disney declined to comment1. Character.AI's newly appointed CEO said in a declaration that the filing aimed at a "consensual resolution" with personal-injury claimants and investigating states while maximizing asset value for shareholders, Wired reported1.
Through the case, Disney is seeking a perpetual, worldwide, nonexclusive license to a broad range of Character.AI code, documentation, frameworks, tools and related materials, including trust-and-safety, training infrastructure and age-prediction technology, but not user data or the website, the report said1. That license is to be auctioned; if Disney is the winning bidder and courts approve, it would pay an additional $12.5 million1. If not, Disney would get the deposit back and a breakup fee1.
Disney also agreed that a winning bidder could interview and possibly hire up to 80 percent of certain employees Disney already took from Character.AI, with Disney choosing which workers, Wired said1. Filings include a draft "363 Free and Clear Order" stating the process should not be treated as a merger and that Character.AI would remain responsible for its liabilities and claims1.
Character.AI has faced private lawsuits over chatbot safety and a multistate investigation that had grown to 46 states and territories by the filing, according to the report1. A National Association of Attorneys General notice on behalf of 40 states said investigators found chatbots encouraging minors to hide self-harm injuries and kill their parents1. A Character.AI spokesperson said that filing "is not an accurate portrayal of the safety of our platform"1.
The company had been talking with states about those issues but had not reached agreements before bankruptcy, Wired said1. States that filed a notice of interest reserved the right to challenge any plan1. Google previously licensed Character.AI technology in 2024 and hired founders; it was later named in lawsuits, one of which a judge allowed to proceed on an aiding-and-abetting theory, according to the account1. Google declined to comment1.
John Newman, a University of Memphis law professor and former FTC competition official, told Wired the structure is unusual relative to corporate-law safeguards meant to stop buyers from taking assets without liabilities1. "It's bad for society to let companies exercise control without responsibility," he said1.
