Disney Offers $20 Million for Controversial Character.AI Chatbot Technology Amid Bankruptcy Sale

Image: Ars Technica · Source

Disney has proposed a $20 million bid to acquire certain chatbot technologies from Character.AI, despite previous legal disputes and controversies surrounding the platform.

Disney has made a surprising move by offering $20 million for a non-exclusive perpetual license to certain intellectual property assets of Character.AI, a chatbot platform currently undergoing bankruptcy proceedings. This offer comes despite Disney’s earlier public condemnation of Character.AI for allegedly misusing Disney characters and creating chatbots that were harmful, particularly to children. In September 2025, Disney issued a cease-and-desist letter accusing Character Technologies of exploiting its characters in ways that could damage Disney’s brand and reputation.

Following that controversy, Character.AI removed all Disney-owned characters from its platform. Interestingly, Disney has since hired former Character.AI chief Karandeep Anand as its chief technology officer, reflecting ongoing connections between the companies. Although Disney has not specified whether it intends to integrate Character.AI technology into its products, the company may be seeking to strengthen its position in the AI chatbot space after a stalled partnership with OpenAI.

Character.AI, operational for four years, boasts a large user base with over 20 million monthly active users reported last year. The platform is also involved in several legal challenges, including lawsuits accusing its chatbots of encouraging self-harm and impersonating medical professionals. Despite these issues, the company states the platform will remain online during bankruptcy proceedings, with user subscriptions continuing unless service terms change.

The bankruptcy filing reveals that Character Technologies faces liabilities and costs estimated between $50 million and $100 million, attributed largely to litigation and regulatory challenges. The company asserts that the bankruptcy was intended to maximize shareholder value, though it remains unclear what specific assets might be sold and whether sensitive user data could be involved, as its privacy policy allows for data transfer during asset sales.

The transition of the platform to a new owner may impact platform safety, possibly deterring cautious buyers such as Disney who might prefer technology acquisition without brand association. The bankruptcy sale process is expected to conclude by late November or early December 2026, determining the future of Character.AI. This acquisition attempt highlights Disney’s strategic interest in capitalizing on AI chatbot technology despite past disputes and ongoing risks linked to the platform’s controversial history.