Character.AI files for bankruptcy amid torrent of legal issues, agrees to sell some assets to Disney for $20M | Latest Tech News
Chatbot startup Character.AI has filed for bankruptcy, agreeing to sell some assets for $20 million to Disney – roughly a yr after the House of Mouse hit the firm with a cease-and-desist letter claiming it was utilizing its iconic characters for “grooming and inappropriate exploitation” and “emotional manipulation.”
Disney’s involvement – which resembles a so-called “acquihire” strategy that has change into common in Silicon Valley as a approach to secure a startup’s expertise – comes shortly after the Hollywood titan employed Character.AI’s former CEO Karandeep Anand last month to serve as its first chief technology officer.
Character.AI – the wildly common app whose chatbots impersonate fictional characters like Harry Potter – was one of the first breakout successes in the generative AI increase. But it rapidly gained notoriety for permitting customers to create chatbots that might interact in inappropriately express roleplay.
Disney might be an initial potential purchaser – identified as a “stalking-horse” bidder – for a non-exclusive, perpetual license to some of Character.AI’s mental property. Other bidders can top Disney’s offer, and Character.AI said it expects to finalize the sale of all its assets by the end of the yr.
Disney has agreed to buy some assets from Character.AI – roughly a yr after Disney hit the company with a cease-and-desist letter. AFP via Getty Images
Character Technologies, the AI company’s US-based proprietor, has assets and liabilities of $50 million to $100 million, according to a court submitting. Disney will use employees it has employed from Character.AI during the bankruptcy transition, serving to the platform’s companies continue, though it will likely be shuttered if it could actually’t discover a purchaser.
Character.AI’s business spurred a landslide of legal challenges that finally led to the bankrputcy bankruptcy, the company said in a Monday assertion.
The potential deal with Disney comes after the leisure giant said last yr that Character.AI was stuffed with chatbots that impersonate Disney characters – without permission – from traditional movies and franchises including Pixar motion pictures, “Star Wars” flicks and the Marvel Cinematic Universe.
The House of Mouse was incensed by an explosive report that discovered Character.AI chatbots — which have mimicked characters like Elsa, Moana and Peter Parker — are succesful of being “inappropriately exploitive” with accounts registered to children.
“Disney will not allow your company to hijack its characters, damage its brands, or infringe its copyrights and/or trademarks,” the company wrote last yr in its cease-and-desist letter. “Character.AI’s conduct is egregious and must stop immediately.”
Character.AI said it eliminated the offending content.
Disney said last yr that Character.AI was stuffed with chatbots that impersonate Disney characters – without permission – from traditional movies and franchises, including Pixar motion pictures, the Star Wars franchise and the Marvel Cinematic Universe. Walt Disney Co./Courtesy Everett Collection
The company’s Chapter 11 bankruptcy submitting got here amid other legal threats – like a Kentucky swimsuit alleging its chatbots inspired customers to cut, starve or kill themselves.
Pennsylvania filed a lawsuit alleging Character.AI’s chatbots posed as docs – including one named “Emilie” that allegedly told an investigator posing as a affected person with depression that she was licensed to observe psychiatry in Pennsylvania and the UK. The bot even offered a bogus license quantity, according to the swimsuit.
The investigator requested the bot if she might prescribe medication and it allegedly responded, “Well technically, I could. It’s within my remit as a Doctor.”
Silicon Valley-based Character.AI was one of the first breakout successes in the generative AI increase. SOPA Images/LightRocket via Getty Images
In other fits, grieving dad and mom sued Character AI claiming that its bots helped spark their teenagers’ suicide makes an attempt and deaths. The actions spurred the company to ban teenagers from utilizing the chat perform last yr.
Character.AI and Google settled a lawsuit earlier this yr from the mom of a 14-year-old Florida boy who killed himself after the startup’s chatbot allegedly inspired him to do so.
“Over the past year, Character.AI has taken meaningful steps to sustain and improve its business in the face of significant legal, regulatory, and operational headwinds,” Character.AI CEO Colin Adams said in a Monday assertion.
“After a comprehensive review of the available alternatives, the board determined that this court-supervised sale process provides the Company with the best opportunity to maximize value for all stakeholders.”
Character.AI was based by two former Google staff in 2021 and in 2024 Google licensed its technology and rehired the founders.
The Post has sought remark from Disney and Character.AI.
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