Character.AI’s proposed Disney transaction highlights the differences between licensing intellectual property, selling assets, and preserving a business.
A technology company’s intellectual property can have value separately from its operating platform. Character.AI’s announced Chapter 11 process illustrates why the structure of a proposed transaction matters.
What Has Been Announced?
In its October 12, 2026 announcement, Character Technologies Inc., which operates Character.AI, said it had commenced Chapter 11 proceedings in Delaware to pursue a sale of all or substantially all of its assets.
The company described an agreement with Disney Worldwide Services, Inc. involving a nonexclusive, perpetual license to certain intellectual property and certain company claims. The stated consideration includes $20 million and transition services.
Disney is the proposed stalking-horse bidder—an initial bidder whose transaction remains subject to higher or better offers and the applicable court process. The announcement does not establish a completed acquisition of Character.AI’s business. 1
Licensing Technology Is Different From Buying a Business
An IP license grants specified rights under an agreement. Its scope may depend on the covered technology, permitted uses, exclusivity, duration, and transfer restrictions.
A nonexclusive license does not, by itself, establish ownership of the underlying IP or control of the company. Copyright law provides one illustration: its definition of a transfer of copyright ownership excludes nonexclusive licenses. That statutory definition concerns copyrights; other IP rights require their own analysis. 2
Purchasing selected assets and acquiring an operating business also involve different questions. A transaction can convey valuable rights without requiring the buyer to maintain the seller’s existing service.
How Does the Bankruptcy Process Matter?
Section 363(b)(1) of the Bankruptcy Code provides a framework for using, selling, or leasing estate property outside the ordinary course of business after notice and a hearing. A Chapter 11 debtor in possession generally exercises a trustee’s powers, subject to statutory limitations and court orders. 3
The transaction documents and court orders determine what is authorized. An announced bid should not be treated as a completed, court-approved transaction.
Character.AI said it intends to continue operating during the sale process, but warned that the platform would wind down if no resulting purchase provides for its continuation. 1
What the Announcement Does Not Establish
The $20 million figure should not be treated as a valuation of the entire company. Nor does the announcement establish that Disney will receive users’ private conversations or unrestricted customer-data rights.
Any proposed transfer of personal information requires separate analysis. Section 363(b)(1) contains specific protections concerning certain privacy policies and proposed sales or leases of personally identifiable information; bankruptcy does not automatically eliminate privacy restrictions. 3
Practical Questions for California Founders
Before licensing technology or negotiating an asset transaction, businesses should examine:
- Ownership: Does the company have the necessary employee, founder, and contractor IP assignments?
- Existing restrictions: What rights have already been licensed, pledged, or limited?
- Transaction scope: Which assets and permissions are included, and which are excluded?
- Operations: Who will provide hosting, maintenance, transition support, and customer service?
- Data and contracts: What privacy obligations, consent requirements, and transfer restrictions apply?
These are practical diligence questions, not findings about Character.AI’s agreements.
The transaction’s label is only the starting point. The operative documents determine which rights change hands and which responsibilities continue.
Related firm services are described on the startup and business transactions and intellectual property practice pages.
Footnotes
- 1.
- 2.
- 3.
Sources & Authorities
- Character Technologies Inc., Chapter 11 announcement (Oct. 12, 2026), Business Wire — Company-issued announcement, not a court ruling.
- 17 U.S.C. § 101
- 11 U.S.C. § 363
- 11 U.S.C. § 1107
Mahrouyan Law handles these matters directly. Read more about how the firm approaches startup & business transactions in California, or discuss your own situation with the firm.
Discuss Your Matter
Mahrouyan Law, P.C. advises California founders and businesses on IP ownership, licensing agreements, asset transactions, and commercial contracts. Contact the firm to discuss your transaction.
Omeed Mahrouyan is the founder of Mahrouyan Law, P.C., a California firm handling business and commercial litigation, property and cargo damage claims, personal injury, landlord representation, startup transactions, and practical intellectual property matters. Clients work directly with him on strategy, drafting, and case decisions.
More about Omeed Mahrouyan →