Character.AI files for bankruptcy amid torrent of legal problems, agrees to sell some assets to Disney for $20M

Chatbot startup Character.AI has filed for bankruptcy, agreeing to ​sell some assets for $20 million to Disney – roughly a year after the House of Mouse hit the firm with a cease-and-desist letter claiming it was using its iconic characters for “grooming and sexual exploitation” and “emotional manipulation.”  Disney’s involvement – which resembles a so-called “acquihire” strategy that has become popular in Silicon Valley as a way to secure a startup’s talent – comes shortly after the Hollywood titan hired Character.AI’s former CEO Karandeep Anand last month to serve as its first chief technology officer. Character.AI – the wildly popular app whose chatbots impersonate fictional characters like Harry Potter – was one of the first breakout successes in the generative AI boom.But it quickly gained notoriety for allowing users to create chatbots that could engage in sexually explicit roleplay.Disney ​will be an initial prospective buyer – known as a “stalking-horse” bidder – for a non-exclusive, perpetual license to some of Character.AI’s intellectual 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 year.​Character Technologies, the AI company’s US-based owner, has assets and liabilities of $50 million ‌to $100 ⁠million, according to a court filing.

Disney will use staff it has hired from Character.AI during the bankruptcy transition, helping the platform’s services continue, though it will be shuttered if it can’t find ​a buyer.Character.AI’s business spurred a landslide of legal challenges that ultimately led to the bankrputcy bankruptcy, the company said in a Monday statement.The potential deal with Disney comes after the entertainment giant said last year that Character.AI was filled with chatbots that impersonate Disney characters – without permission – from classic films and franchises including Pixar movi...