39 states want a watchdog before Character.ai sells its users' chats

Attorneys general for 39 states and the District of Columbia filed a joinder in Delaware bankruptcy court on October 29, backing the Justice Department's bankruptcy watchdog: if Character Technologies sells or transfers anything holding its users' personal or sensitive information, including minors', a consumer privacy ombudsman is necessary first. The filing adopts the US Trustee's October 27 objection to the company's Disney-led sale procedures, and the judge hears that dispute on October 30.

The urgency is the gap between the headline deal and the rest of the estate. Disney's $20 million opening bid buys a non-exclusive license to code and patents and explicitly excludes the app, user data and chats — but the states say the sale motion does not make it 'readily apparent' that the company is also marketing its entire platform. Their earlier filing put US accounts at more than 21.6 million, over 2.1 million of them declared under 18.

Character says its privacy policy already permits the transfer, so no ombudsman is required, though it says it would consent to one under appropriate circumstances; Disney says it buys no user data at all. An ombudsman would test whether the privacy promises made to users survive a change of owner — and, if one is needed for the sale hearing, bankruptcy law requires the appointment at least seven days beforehand, leaving little slack on the company's proposed November auction calendar.