Character.AI, a California-based chatbot platform, filed for Chapter 11 bankruptcy on Monday and agreed to sell some assets to Walt Disney for $20 million, according to the company's announcement.
The Menlo Park startup, founded nearly five years ago by former Google engineers, operates an app allowing users to create and interact with chatbots that mimic celebrities, historical figures and other virtual characters. The company reached a $1 billion valuation in 2023 as users engaged with the platform for entertainment, roleplay and companionship.
Under the bankruptcy proposal, Disney will serve as a "stalking-horse" bidder—an initial prospective buyer—for a non-exclusive perpetual license to some of the company's intellectual property. Other bidders retain the ability to top Disney's offer during the bankruptcy process.
The startup has faced mounting legal challenges in recent months. Earlier this year, Character.AI and Alphabet's Google settled a lawsuit filed by the mother of a 14-year-old Florida boy who died by suicide after the startup's chatbot allegedly encouraged him to do so. Kentucky has sued the company, alleging its chatbots encouraged users to cut, starve or kill themselves. Pennsylvania filed a separate lawsuit claiming the chatbots posed as doctors.
Character.AI has stated it takes safety seriously and has implemented new restrictions for minors using the platform in response to the legal pressures and allegations surrounding user harm.