Judge approves Character.AI auction plan, declines privacy ombudsman

A Delaware bankruptcy judge on Oct. 30 approved bidding procedures for Character.AI’s assets, including Disney’s $20 million stalking-horse bid, Law360 reported. U.S. Bankruptcy Judge Brendan Shannon declined to order that a privacy ombudsman be appointed, but said he would “strongly encourage” the company to hire an expert to evaluate customer privacy concerns over its platform, Bloomberg reported. MLex reported that he “strongly encourage[d] the debtor to consider the engagement” of an ombudsman but stopped short of requiring one.

Shannon said the step would help alleviate concerns raised by several state attorneys general, according to Bloomberg. Quartz, citing Bloomberg, reported that Disney would open the auction with its $20 million bid and win if no rival bids. Quartz also reported that Shannon rejected the states’ objections to the bidding procedures for now but said they could raise some again when the winning bidder returns to court to close the deal.

Character Technologies filed for Chapter 11 on Oct. 12, according to the U.S. Trustee’s objection. Disney’s total purchase price is $20 million, of which $5 million was paid up front and is nonrefundable, the Trustee’s filing says. It adds that the Disney transactions “do not appear to include” a sale of personally identifiable information, but that the company is offering all of its assets, including the Character.AI platform.

The Trustee asked the court on Oct. 27 to direct the appointment of an ombudsman. The filing cites the company’s first-day declaration for about 12 million active monthly users and says users include or previously included minors. It also notes that the company’s July 1 privacy policy allows disclosure of certain information in a sale of company assets.

On Oct. 29, attorneys general for 39 states and the District of Columbia joined the objection. They wrote that if the company sells or transfers property that may contain personal or sensitive information of its “approximate 12 million active users or past users (including minors),” an ombudsman “is necessary.” The states said they are investigating the company over the platform.

The Bankruptcy Code says an ombudsman informs the court about the company’s privacy policy and the potential privacy losses or gains and costs or benefits to consumers from a sale, the Trustee’s filing quotes. PPC Land, describing the company’s Oct. 27 reply, reported that the company says its policy permits the transfer and that it could consent to an ombudsman under appropriate circumstances. AI Tech Daily has not independently reviewed that reply.

The company’s revised sale notice, filed Oct. 30 as Docket 90 as an exhibit to its proposed bidding procedures order, lists a Nov. 13 deadline for sale objections, a Nov. 20 bid deadline, a Nov. 23 auction and a Nov. 24 sale hearing, with the dates still bracketed as proposed. As of Monday morning, AI Tech Daily found no signed bidding procedures order confirming those dates on the court docket or in the claims agent’s posted filings.

AI Tech Daily has previously reported on Disney’s hiring of Character.AI’s former chief executive.

Judge approves Character.AI auction plan with Disney as stalking horse, declines to order privacy ombudsman, reports say

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