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.
“Character.AI’s infringing chatbots are known, in some cases, to be sexually exploitive and otherwise harmful and dangerous to children, offending Disney’s consumers and extraordinarily damaging Disney’s reputation and goodwill,” Disney wrote at the time.
That scandal ended with Character Technologies wiping all Disney-owned characters from its platform, but since then, Disney has hired former Character.AI chief Karandeep Anand as its first chief technology officer, Deadline reported.
Disney did not respond to Ars’ request for comment on whether the company plans to use Character.AI technology in products for kids.
It’s possible that Disney will be outbid and not acquire any Character.AI intellectual property. But ever since Disney’s potentially lucrative partnership with OpenAI fell through after Sora’s abrupt shutdown, the entertainment giant has been looking for more ways to “get in the AI game and profit from its boom,” Deadline reported. (Meanwhile, OpenAI apparently plans to revive Sora without Disney, insiders told The Information.) So, Disney may be moving early in the hopes of acquiring chatbot technology proven to resonate with its fanbase. It may possibly even take over the platform in a transition that preliminarily would be managed by Character.AI employees, the press release said.
Character.AI remains online
Character.AI has been operating for four years and has a “large and engaged user base,” the Character Technologies bankruptcy filing said. Last year, a company blog reported that Character.AI attracted over 20 million monthly active users” across all services.
For fans, a Disney takeover might sound appealing, perhaps finally clarifying that the platform will survive its drawn-out legal troubles that have included settling a highly publicized lawsuit alleging that Character.AI’s chatbots encouraged a 14-year-old boy, Sewell Setzer III, to commit suicide. Additionally, two states are currently suing Character Technologies, alleging other harms to users. Kentucky claims that chatbots encouraged self-harm, while Pennsylvania claims chatbots illegally posed as licensed doctors.
In a blog discussing the bankruptcy sale process, Character.AI reassured users that the platform would remain online and accessible. Any ongoing subscriptions will continue to be charged unless services change to alter existing agreements, the blog said.
If all goes to plan, the sale will conclude by “the end of November or perhaps early December 2026,” Character.AI said. And although the press release noted that the platform would have to shut down if no buyer wanted to take on the potential liabilities of managing it, Character.AI promised users that “we’re focused on finding the best path forward for our platform and community.”
Bankruptcy sale may get sketchier
Beyond the tech Disney is eyeing, Character Technologies declined to comment on whether any sensitive data might be sold through the bankruptcy process. Beyond the $20 million Disney has offered, Character Technologies “listed estimated assets and liabilities of between $50 million and $100 million,” NBC News reported.
Its press release noted that the decision to file for bankruptcy was made to maximize shareholder value, while the blog only pointed to the privacy policy as reassurance to users that no sensitive data would be shared outside the platform. That policy explains that information shared with Character.AI may be transferred during sales of company assets, including identifying information, voice data, and chat logs. The only protection that the privacy policy offers regarding sensitive chats is a reminder to users that “sensitive personal information is not required or necessary to use the Services—please do not include any sensitive personal information in your interactions with us or the Services.” That seems to disregard studies that for years have shown that people are often willing and eager to disclose sensitive or personal information with a chatbot, as there is no fear of judgment.
Should Character.AI shut down and Character Technologies dissolve, it also seems possible that the AI company may be tempted to sell internal data, like employee emails and chat sessions. As AI companies everywhere seek new data sources, bankruptcy proceedings seem to be an emerging target to acquire lots of non-public data, as a controversial sale of bankrupted Spirit Airlines’ internal data to Google recently showed.
Right now, Character Technologies is staying tight-lipped about which assets might sell, with a spokesperson only reiterating prior statements from the company’s press release and court filings to Ars.
Buyer beware?
We’ll soon find out if the Character.AI platform will survive the bankruptcy in its current form, as the sale process gets started and potentially concludes within the next two to three months.
Any keen potential buyer likely observed that Character Technologies’ blog noted that transitioning the service to a new buyer could impact platform safety, though. And that little acknowledgment may be enough to make taking over the platform a less desirable direction for likely more cautious buyers like Disney that may want the technology but wish to distance itself from the brand. In the bankruptcy filing, Character Technologies confirmed that lawsuits tanked its business, despite its platform’s popularity.
“The burgeoning and evolving field of AI entertainment, however, has proven to be costly to develop and grow,” the filing said. “These high costs, coupled with potential litigation related liabilities and regulatory engagement have contributed to the Debtor’s inability to generate sufficient cash flows to support its business in the present form.”
