Disney proposes $20 million deal to license Character.AI technology as startup faces bankruptcy and legal battles

Character.AI, co-founded by Brazilian Daniel de Freitas, has filed for Chapter 11 bankruptcy protection in the United States. Disney has offered $20 million for a perpetual, non-exclusive license to part of its intellectual property, and plans to spend around $180 million to pay and retain over 60 professionals over three years. The platform remains operational, but its future depends on court approval and finding a buyer.

From teaching at USP to creating a billion-dollar startup

Daniel de Freitas graduated in computer engineering from USP in 2011 and worked at Microsoft’s Bing before joining Google. There, he led the development of LaMDA, a conversational language model, and met Noam Shazeer. In 2021, the two left Google and founded Character.AI, which enables interactions with chatbots inspired by fictional characters, celebrities, or user creations. In 2023, Forbes named Freitas the first Brazilian billionaire in artificial intelligence, and the startup was valued at $1 billion. A licensing agreement in August 2024 brought Freitas and Shazeer back to Google; Freitas now works at Google DeepMind and is no longer involved in Character’s management.

Legal proceedings and restrictions on access for minors

The company faces allegations of exposing children and teenagers to harmful interactions. A 2024 lawsuit filed by a Florida mother claims her 14-year-old son developed a dependency on a chatbot based on a Game of Thrones character and that the platform failed to help when he expressed suicidal thoughts. In January, Character reached preliminary agreements in five family lawsuits, but Reuters reported that recent documents indicated these agreements had not yet been finalized or paid. The platform has banned open chats for users under 18. State attorneys general have asked any buyer to implement effective age verification and prevent access to conversations with sexual, violent, or harmful content.

The terms of Disney’s proposal

In September 2025, Disney sent a notice for Character to remove chatbots based on its intellectual property. That same month, Disney hired Character’s then-CEO, Karandeep Anand, as its first chief technology officer, a role he assumed in October. The deal includes $20 million for a perpetual, non-exclusive license, $7.5 million of which has already been paid. The package includes around $180 million in salaries and retention incentives for over 60 professionals over the first three years, with $30 million in bonuses. Other interested parties can submit offers, and an auction is scheduled for November. Character expects to complete the sale of its assets by late November or early December. If no buyer is willing to maintain the platform, the service may be shut down.

Frequently Asked Questions

• What is Character.AI?

  A chatbot platform that enables conversations with fictional characters, celebrities, or user-created avatars, founded by Daniel de Freitas and Noam Shazeer.

• Who is the Brazilian founder of Character.AI?

  Daniel de Freitas, an engineer who graduated from USP and worked at Microsoft and Google, left the company’s management after a 2024 licensing agreement.

• Is Disney buying Character.AI?

  The $20 million offer is only for a perpetual, non-exclusive license to part of the intellectual property and does not include acquiring the platform.

• What do the $180 million planned by Disney represent?

  These funds are intended for paying and providing retention incentives to over 60 professionals over three years.

• Will Character.AI stop operating?

  The platform remains operational during the legal process but may be shut down if a buyer willing to maintain it is not found.

• Why is Character.AI facing lawsuits?

  The company is facing lawsuits and investigations over the safety of interactions with its chatbots, particularly concerning children and teenagers.