This week, the chatbot platform Character.AI filed for bankruptcy, much to the surprise of many. However, court filings reveal that this move was part of a strategic deal allowing Disney to poach most of Character.AI’s talent and technology while sidestepping significant legal liabilities.

Character.AI has faced numerous lawsuits and regulatory probes over the safety of its chatbots. The bankruptcy declaration was a key element of a deal that aims to transfer the company’s intellectual property to Disney, while leaving Character.AI with the burden of ongoing legal battles.

The deal, which Disney has structured as a form of “reverse acquihire,” involves a series of transactions, including a $5.5 million payment, a $2 million deposit, and hiring the majority of Character.AI’s employees. Disney will also have access to a vast array of Character.AI’s intellectual property, including code, documentation, and training infrastructure.

While some may see this as a savvy corporate move, experts warn that the deal’s structure could lead to unrealistic expectations and potential legal complications. The use of bankruptcy as a means to avoid full mergers and liabilities is raising questions about how businesses are navigating the complex legal landscape of the AI industry.