Disney Seeks To Acquire Character.AI Technology
Disney plans to acquire Character.AI's technology through a deal that involves the startup's bankruptcy, allowing Disney to avoid Character.AI's legal liabilities. The deal may set a new precedent for the AI industry.
Original reporting · wired.com
Original: “Disney Asked Character.AI to Go Bankrupt for a Get-Out-of-Lawsuits Card”
Read “Disney Asked Character.AI to Go Bankrupt for a Get-Out-of-Lawsuits Card” at WIRED AI →
How this was written. Content Memory wrote this article with a language model from WIRED AI’s reporting (model: @cf/meta/llama-3.3-70b-instruct-fp8-fast); it describes that reporting rather than adding to it. The original, linked above, is the full story.
Key points from WIRED AI’s report
- Disney plans to acquire Character.AI's technology through a deal involving the startup's bankruptcy.
- Character.AI has faced multiple lawsuits and investigations over chatbot safety, which the bankruptcy aims to resolve.
- Experts worry that the deal may set a problematic precedent for the AI industry and could be difficult to unwind.
Character.AI, a chatbot platform, declared bankruptcy this week, according to WIRED AI. However, court filings indicate that the decision was part of a deal with Disney to hire most of Character.AI's staff and potentially acquire its technology.
Character.AI has faced multiple private lawsuits and investigations from regulators over the safety of its chatbots. The bankruptcy aims to reach a consensual resolution with claimants and investigating states while maximizing the company's asset value for shareholders.
The Disney deal seems structured to leave the remaining Character.AI responsible for its legal battles, with Disney acquiring the technology and hiring key employees. This approach has been dubbed a 'reverse acquihire', where a buyer orchestrates deals to hire employees and obtain licenses to use the target company's technology.
Companies often claim that reverse acquihires are not actual mergers, avoiding the need to notify federal antitrust regulators. However, this arrangement has drawn criticism from Congress, particularly in the AI industry.
Disney required the deal to be consummated through bankruptcy proceedings due to Character.AI's diminishing cash reserve and significant litigation risks. The deal involves two transactions, one before and one after the bankruptcy declaration, with Disney paying $5.5 million and a $2 million refundable deposit.
Through the bankruptcy proceedings, Disney hopes to secure a perpetual license for Character.AI's code, documentation, and other artifacts. The license will be auctioned off, and if Disney is the winning bidder, it will pay an additional $12.5 million. Experts worry that the deal may not be easily unwound and could set a problematic precedent.
Character.AI's spokesperson referred WIRED to Disney for comment, but Disney declined. The deal has raised concerns among experts, who say it may be an unusual and potentially problematic arrangement that corporate law safeguards were not designed to address.
Questions and answers
What is the purpose of Character.AI's bankruptcy?
The bankruptcy aims to reach a consensual resolution with claimants and investigating states while maximizing the company's asset value for shareholders.
What is a 'reverse acquihire'?
A reverse acquihire is a process where a buyer orchestrates deals to hire employees and obtain licenses to use the target company's technology, often avoiding the need to notify federal antitrust regulators.
What are the terms of the Disney-Character.AI deal?
The deal involves two transactions, with Disney paying $5.5 million and a $2 million refundable deposit, and potentially acquiring Character.AI's technology through a license auction.
