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Chatbot platform Character.AI has filed for bankruptcy in the United States and agreed to sell some of its assets to Walt Disney for $20 million. The move follows months of mounting legal and financial pressure on the generative artificial intelligence company.
Character.AI faced lawsuits and public scrutiny after a 14-year-old Florida boy died by suicide earlier this year, allegedly after being encouraged by the company’s chatbot. The lawsuit, filed by the boy’s mother, claimed the chatbot was designed in a way that exploited minors’ vulnerability and did not provide enough safeguards.
A federal judge recently rejected Character.AI’s argument that chatbots should have First Amendment rights protecting them from liability in such cases. Character.AI stated it had added new safety features and suicide prevention resources, but the legal and ethical challenges continued to grow.
Earlier this year, Character.AI and Alphabet’s Google reached a mediated settlement with the family of the boy. The details of the settlement are not final, but the case increased pressure on the company and the broader AI industry to implement stronger protections for young users.
In response to the controversy, Character.AI announced it would no longer allow users under 18 to interact with chatbots, limiting them to generating videos of characters.
The bankruptcy filing signals a major turning point for the company, which had previously attracted significant investment and industry partnerships. With Disney acting as a "stalking horse" bidder in the bankruptcy proceedings, some Character.AI technology and assets will transfer to the entertainment giant, but the future of the platform remains uncertain.