Disney Asked Character.AI to Go Bankrupt for a Get-Out-of-Lawsuits Card
The entertainment giant hopes to get trust and safety tech, among other IP, from a startup whose chatbots dozens of states allege encouraged minors to self-harm and kill their parents.
Disney has entered into a controversial deal with Character.AI, reportedly to avoid legal liabilities and secure valuable intellectual property. According to court filings, the agreement is structured as a "reverse acquihire," where Disney absorbs the startup's assets while leaving behind its legal troubles. Character.AI's new CEO stated that the bankruptcy was designed to reach a settlement with claimants and regulators while maximizing the company's value for shareholders.
The deal involves two transactions - one before and one after the bankruptcy filing - and is expected to result in Disney acquiring a perpetual license to Character.AI's code, documentation, and other tech assets. This includes important components like the trust and safety moderation stack, training infrastructure, and age-prediction technology.
The startup's IP will be auctioned off in the coming months. If Disney is chosen as the winning bidder, they will pay an additional $12.5 million and continue to be responsible for any legal claims against Character.AI. Critics argue that the deal is unusual and may not be easily reversible, as it involves transferring employees from one company to another within months.
However, experts note that Disney has not explicitly stated that the arrangement is contingent on Character.AI declaring bankruptcy, and the terms of the deal remain confidential.
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