A U.S. bankruptcy judge allowed Character.AI to proceed with an asset sale despite objections from attorneys general in 41 states. Disney has offered $20 million for a non-exclusive technology license and plans to pay $180 million to 66 former Character.AI employees over three years.
Judge Brendan Shannon approved Character.AI’s bidding procedures, saying it needed to move quickly to find buyers before its financial condition deteriorated. The company expects to return to court on November 30 to seek approval of asset sales.
Attorneys general for 41 states argued that Disney had an advantage after hiring most of Character.AI’s employees before the bankruptcy filing. Disney hired 66 of the company’s 86 employees and agreed to make an initial $20 million bid for a non-exclusive license to its chatbot technology; it does not plan to acquire the platform or user data.
Character.AI’s investment banker testified that buyers had expressed interest in the chatbot platform and other assets Disney does not want. The judge said legal protections for Disney and former employees could be challenged separately and were not approved at the hearing; he said he would likely appoint a privacy ombudsman to address concerns about children’s chat records.
