Disney Asked Character.AI to Go Bankrupt for a Get-Out-of-Lawsuits Card
· Business
Disney hopes to acquire Character.AI technology and hire staff through a bankruptcy deal structured so the startup retains legal liabilities.
Disney hopes to acquire Character.AI technology and hire staff through a bankruptcy deal structured so the startup retains legal liability.
Character.AI filed for chapter 11 bankruptcy on October 12 as part of an integrated deal with Disney. Court filings show Disney paid $5.5 million upfront with a $2 million refundable deposit, hired the majority of Character.AI's employees including CEO Karandeep Anand, and agreed to let some Disney-hired employees keep Character.AI operational for five months.
Character.AI faced multiple private lawsuits over chatbot safety and investigations from regulators worldwide. The bankruptcy was designed to reach a consensual resolution with personal injury claimants and investigating states while maximizing asset value for shareholders.
Through bankruptcy proceedings, Disney hopes to secure a perpetual, worldwide, nonexclusive license for Character.AI's code, documentation, frameworks, trust and safety moderation stack, training infrastructure, and age-prediction technology. This license will be auctioned in coming months.
The deal is structured as a 'reverse acquihire,' a process where a buyer carefully orchestrates transactions to hire key employees and obtain technology licenses. A motion filed by Character.AI's legal counsel says Disney required the deal be 'fully consummated' through bankruptcy because of the startup's 'diminishing cash reserve and significant litigation and regulatory risks.'
If Disney wins the IP auction and courts approve the deal, it will pay $12.5 million as a closing payment. Character.AI will retain responsibility for all legal liabilities and ongoing lawsuits through the '363 Free and Clear Order' approved by the court.
Disney hopes to acquire Character.AI technology and hire staff through a bankruptcy deal structured so the startup retains legal liability.
Source: WIRED
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