The private conversations of up to 125,000 Australian children who used the AI companion app Character.AI are for sale after the company filed for bankruptcy in the United States, with a deadline of November 21 for rival bidders to acquire the user data.
Court filings show Disney has agreed to pay $US20 million ($28.6 million) for a licence to Character.AI's technology, but the deal excludes the app, its user accounts and every message its users typed. Those assets remain open to rival bidders until November 21 AEDT. If no better offer emerges, the company has told the court its platform "will be wound down".
That means a buyer could acquire years of intimate exchanges with chatbots that the eSafety Commissioner says are "engineered to feel personal", in which users, including teenagers, discussed their feelings, relationships and mental health.
A Character.AI spokesperson said the company had faced "significant legal, regulatory, and operational headwinds" and a court-supervised sale offered "the best opportunity to maximise value for all of our stakeholders". The spokesperson added that "the Character.ai platform remains up and running globally".
Analysis
Why This Matters
- The sale of intimate AI chat logs from minors creates severe privacy risks, as sensitive conversations about mental health, relationships and personal feelings could fall into the hands of unknown buyers.
- This case tests how data privacy protections apply when an AI startup goes bankrupt, with implications for the millions of children and teenagers who use similar companion apps globally.
- If no buyer emerges by November 21, the platform will be wound down, potentially leaving users without access to their personal data or any means to delete it.
Background
Character.AI is an AI companion app that allows users to chat with virtual characters. It became popular among younger Australians for its personalised, conversational style. The company filed for bankruptcy in the United States amid what it described as significant legal, regulatory and operational challenges. Australian regulators, including the eSafety Commissioner, have previously raised concerns about AI chatbots and their potential to entrap children through sexual content.
Key Perspectives
Australian children and families: Up to 125,000 Australian children face the prospect of their private conversations being sold, with no control over who acquires the data or how it might be used, including for advertising, training other AI models, or identity exploitation.
Disney: The media giant has secured a technology licence worth $20 million but deliberately excluded the user data and accounts, suggesting it did not want the liability or privacy risk associated with those assets.
Critics and privacy advocates: They argue that the bankruptcy process exposes a gap in data protection law, where companies can treat user conversations as assets to be sold, and that stronger safeguards are needed to prevent the commercialisation of children's intimate data.
What to Watch
- Whether a rival bidder emerges before the November 21 deadline to acquire the user data and accounts.
- The response of Australian regulators, particularly the eSafety Commissioner, who may seek to block or impose conditions on any sale of children's data.
- How other AI companion apps handle user data in their terms of service and whether this case prompts legislative reform on data rights in bankruptcy.