Character.AI files for bankruptcy amid data protection concerns

Summarised from 2 outlets · Updated 16 Oct, 12:20 · Archive

Character.AI, an AI chatbot service used by millions, has filed for bankruptcy and is selling assets to Disney.

Character.AI, an AI chatbot service allowing users to chat with artificial intelligence characters, has filed for bankruptcy and will sell some of its assets to Disney. The company announced the move this week, saying it had faced significant legal, regulatory and operational headwinds that made sustaining the business impossible.

The service had attracted millions of users who chatted with AI characters designed to mimic celebrities, fictional figures and systems presented as therapists. Character.AI received sustained criticism from those arguing it damaged the mental health of young users.

Forty US attorneys general have filed a legal document expressing alarm over the bankruptcy and asset sale. They warned that the service's highly sensitive user data—particularly conversations with minors—could be at risk during the transfer process. The attorneys general noted that because the chatbots are designed to 'mimic human interaction' and 'create emotional bonds', users 'divulge their most private thoughts and emotions' to them.

Character.AI said it would continue operating normally and that user data would remain protected by its privacy policy throughout any sale process.

How it is being reported

• What this bankruptcy says about AI startupsCharacter.AI collected millions of users, making it a very appealing acquisition. Google took a unique route to "acquiring" it, hiring away its founders and licensing its technology. Now Character.AI is filing for bankruptcy. Here's what to know.NPR · 16 Oct, 12:00
• Character.AI: A huge AI chatbot company has gone bankrupt – and experts are worried what happens nextCompany’s chatbots pose as therapists and fictional characters, and have allowed it to gather intimate and sensitive data about children, attorneys general warnIndependent Tech · 15 Oct, 16:32

In this story: Character.AI · Disney · Google

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