Controversial chatbot platform Character.ai is seeking Chapter 11 bankruptcy protection in the wake of mounting legal challenges and runaway operating costs, the four-year-old startup said in a surprise announcement on Monday.
The move comes as the Menlo Park, California, company has faced a number of lawsuits in recent years, including some that say its AI companions have encouraged users harm or kill themselves.
In its announcement, Character.ai said it has reached an agreement with Disney Worldwide Services, an affiliate of the Walt Disney Company, to sell some of its intellectual property for $20 million and “transition services” that will help Character.ai continue to operate, at least temporarily.
Disney will serve as a “stalking horse” bidder in the Chapter 11 proceedings, meaning other companies could offer competing bids.
Fast Company reached out to Disney for comment.
“Over the past year, Character.ai has taken meaningful steps to sustain and improve its business in the face of significant legal, regulatory, and operational headwinds,” CEO Colin Adams said in a statement. “After a comprehensive review of the available alternatives, the board determined that this court-supervised sale process provides the Company with the best opportunity to maximize value for all stakeholders.”
In a blog post, the company said its platform “remains up and running” as it seeks to figure out a path forward. It expects the sale process to be completed by November or early December.
This story is developing…