Disney is hiring most of Character.AI's staff through its bankruptcy

Character.AI filed for chapter 11 bankruptcy on October 12. Court filings show that was part of a deal that lets Disney hire most of the startup's staff, including its former CEO, and seek a broad license to its technology while the startup keeps its legal liabilities.

In September Disney paid Character.AI $5.5 million, plus a refundable $2 million good-faith deposit, and hired the majority of its employees. Through the bankruptcy, Disney hopes to win a perpetual, worldwide, nonexclusive license to a wide range of code, tools and frameworks, including trust and safety and age-prediction systems. If Disney wins the auction and courts approve it, it pays another $12.5 million at closing. The listed assets do not include user data.

The structure matters because Character.AI faces lawsuits over teen safety and an investigation by dozens of states, and the states say they reserve the right to challenge any plan. Experts call it a new twist on the reverse acquihire, where a buyer takes the people and the technology but not the obligations.

Character.AI's own earlier tie-up with Google followed a similar pattern in 2024.

Our take

Disney found a way to buy the team and leave the lawsuits behind. Whether courts allow that will shape how big companies buy troubled AI startups.