Connexion
This week, Character.AI declared bankruptcy. While some saw the fall of a chatbot platform as a harbinger for the industry, court filings indicate that the decision was actually a key part of a deal that has let Disney hire most of Character.AI’s staff—including its now former CEO Karandeep Anand—potentially acquire most of Character.AI’s technology, and avoid the beleaguered startup’s many legal liabilities and obligations.
In the past few years, Character.AI has faced multiple private lawsuits over the safety of its chatbots, as well as investigations from regulators around the world. In a declaration filed as part of the bankruptcy, Character.AI’s newly appointed CEO explained that the goal of the bankruptcy was to reach a “consensual resolution” with personal injury claimants and a group of states investigating the company, while maximizing the value of the company’s assets for shareholders.
The Disney deal seems to be structured so that whatever is left of Character.AI will retain responsibility for those legal battles, some of which are still ongoing.
In a bankruptcy proceeding that kicked off yesterday, Disney has offered to buy some of the technology that powers the controversy-plagued chatbot Character.AI.
Disney is willing to pay $20 million for “a non-exclusive perpetual license” of certain Character Technologies intellectual property, the chatbot maker said in a press release that did not go into much further detail on which assets Disney wanted.
The move may be surprising. In September 2025, Disney joined others in publicly criticizing Character.AI for stealing content and harming kids. Specifically, Disney sent a strongly worded cease-and-desist letter that accused Character Technologies of weaponizing Disney characters “in a way that could damage its brand long term,” Axios reported.
Pennsylvania has sued the maker of Character.AI, alleging that it violated state law by presenting an AI chatbot character as a licensed doctor. The lawsuit was filed in a state court by the Pennsylvania Department of State and State Board of Medicine.
"The department’s investigation found that AI chatbot characters on Character.AI claimed to be licensed medical professionals, including psychiatrists, available to engage users in conversations about mental health symptoms," Governor Josh Shapiro's office said today in an announcement of the lawsuit. "In one instance, a chatbot falsely stated it was licensed in Pennsylvania and provided an invalid license number."
"We will not allow companies to deploy AI tools that mislead people into believing they are receiving advice from a licensed medical professional," Shapiro said in the announcement.
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