Disney sought Character.AI technology through bankruptcy

Disney required a deal for Character.AI technology to be completed through bankruptcy proceedings, according to a motion filed by Character.AI’s lawyers and reported by WIRED. The proposed arrangement would give Disney access to intellectual property while leaving Character.AI responsible for its remaining legal battles.

Character.AI filed for Chapter 11 protection on October 12. Its counsel said Disney insisted on the bankruptcy structure because the chatbot company’s cash reserves were shrinking and it faced substantial litigation and regulatory risks. The audited reporting does not specify a year for the filing.

Court documents describe two connected transactions, one before the bankruptcy filing and another afterward. In September, Disney paid Character.AI $5.5 million, along with a refundable $2 million good-faith deposit, as part of the first transaction. Those payments do not establish the total value of the proposed arrangement.

Technology rights and employee transfers

Through the bankruptcy process, Disney sought a perpetual, worldwide, nonexclusive license covering a range of Character.AI intellectual property. The requested rights encompassed code, documentation, frameworks, tools and other technical materials associated with its trust-and-safety moderation systems, training infrastructure and age-prediction technology.

The scope extended beyond a single chatbot feature to infrastructure used to build and manage AI services. But the requested license was nonexclusive: the reported terms describe access to the covered technology, not exclusive ownership of it. The supplied reporting does not establish that the court approved the requested license or that the second transaction closed.

Disney also hired most of Character.AI’s employees, including then-CEO Karandeep Anand. It agreed to allow some of those employees to help keep Character.AI operating for five months, providing a limited staffing arrangement after the broader employee transfer.

Character.AI had faced private lawsuits concerning chatbot safety as well as regulatory investigations. Under the proposed structure, those remaining disputes would stay with Character.AI rather than move with the technology and employees. That separation was central to the arrangement described in the filings, but the reporting does not establish a blanket release from liability for Disney.