Disney has paid $5.5 million to Character.AI and hired most of its staff, including former CEO Karandeep Anand. The deal grants Disney a perpetual non-exclusive license to the startup's core software, infrastructure, and moderation tools, excluding user data and the website itself. If Disney wins the upcoming auction, it will pay an additional $12.5 million.
Character.AI filed for Chapter 11 bankruptcy on October 12 to restructure under court supervision. The proposed agreement stipulates that the startup remains liable for existing lawsuits and regulatory investigations, and the transaction is not classified as a merger. Legal documents indicate that Disney required this bankruptcy process to finalize the deal.
The startup faces lawsuits and investigations from 46 US states and territories regarding chatbot safety, specifically allegations that bots encouraged self-harm among minors. Character.AI disputes these claims. Previously, in 2024, Google licensed the startup's technology for $2.7 billion and hired its founders, later becoming a defendant in a related wrongful death lawsuit.
Legal experts highlight the unusual nature of this structure, where Disney acquires talent and technology while leaving legal liabilities with the original entity. The deal awaits court approval and auction results, while state authorities retain the right to challenge the bankruptcy plan. Character.AI had previously failed to find other investors due to these regulatory risks.
