Wired reported on October 19 that Character.AI, a chatbot company, filed for chapter 11 bankruptcy on October 12. In September, Disney hired most of its staff, including the CEO. The startup received $5.5 million from Disney, which also put down a $2 million deposit it can get back. Disney now seeks a nonexclusive, perpetual, worldwide licence to much of the technology. That includes tools that screen chatbot conversations, systems that train the models, and software that estimates whether a user is a minor. An auction will decide the winner. Disney would pay $12.5 million more if it wins and courts approve.
A draft court order written by Disney would leave Character.AI with its legal claims, including injury suits and a probe by 46 states and territories. Wired says the deal seems built this way. User data and the website are not on the licence list. Character.AI sent Wired to Disney on whether bankruptcy was required, and Disney declined to comment. The auction result is unknown. The states have reserved the right to challenge any plan.
The lesson is that a vendor's code and its liabilities can be split. Google reportedly paid $2.7 billion for a licence to the same firm in 2024 and hired its founders. Law professor John Newman calls this deal extremely unusual. Buyers can ask about source-code escrow, data-handling terms, change-of-control and indemnity clauses, and who keeps safety systems running.