Disney wants Character.AI to go bankrupt in exchange for a pass from litigation

Character.AI filed for bankruptcy this week, and court documents show this is actually part of a Disney deal: Disney takes most of its employees and technology licenses, while litigation and regulatory liability remain with Character.AI. The documents show that Disney paid $5.5 million and a $2 million refundable good-faith deposit in September, hired most employees including the then-CEO, and had them help keep the company operating for five months; Character.AI filed for Chapter 11 bankruptcy on October 12. Disney intends to obtain a perpetual, worldwide, non-exclusive license to Character.AI's code, documentation, frameworks and tools (including the trust and safety review stack, training infrastructure and age prediction technology); the license will be auctioned in the coming months, and if Disney wins the bid and obtains court approval, it will pay another $12.5 million. Currently 46 states and territories are investigating the company, and a filing submitted by the National Association of Attorneys General on behalf of 40 states said the investigation found serious problems; a Character.AI spokesperson said the filing does not accurately reflect the safety of its platform.