Disney has initiated a two-part transaction to acquire key assets and personnel from Character.AI through bankruptcy proceedings. In September, Disney paid $5.5 million and a refundable $2 million deposit, while hiring the majority of the startup's staff. The deal aims to secure a perpetual, worldwide, nonexclusive license for Character.AI’s code, frameworks, and infrastructure.
If the bankruptcy court approves the deal and Disney is selected as the winning bidder, the company will pay an additional $12.5 million. The structure is designed to ensure that Character.AI retains responsibility for its ongoing legal liabilities, including private lawsuits and investigations by 46 states and territories regarding platform safety.
The arrangement includes a provision for a 363 Free and Clear Order, intended to clarify that the transaction does not constitute a merger. Disney has also agreed to allow the winning bidder to interview up to 80 percent of the employees it previously hired from the startup, though experts have questioned the feasibility of such staff transitions.
Character.AI filed for Chapter 11 bankruptcy on October 12, following unsuccessful attempts to find a buyer in August 2025 due to regulatory and litigation risks. The startup previously licensed its technology to Google in August 2024 for $2.7 billion, a deal that also involved hiring key research staff but left the majority of employees at the company.
