Everybody wanted the people. Nobody wanted the company.

On September 25, 2023, Andreessen Horowitz posted a conversation between Noam Shazeer and Sarah Wang, the partner who six months earlier had written that her firm was "incredibly fired up" to lead his Series A and that she was joining his board. Her question was the one everybody asked him. "You were at Google for almost 20 years," she said. "Why did you decide to leave?" He said he had always been excited about AI and had wanted to push the technology forward, and then he told her the story of the company. Back in 2019 or 2020 his co-founder, Daniel De Freitas, had built a chatbot. They got it running on Google's giant models, and "it was this internal viral sensation at Google." Google did not launch it. "At some point we realized there's just too much brand risk in large companies to ever launch anything fun," Shazeer said. The man saying this was one of the eight authors of the 2017 paper that introduced the transformer, the piece of mathematics under every chatbot now in use. He left, and launched it himself.

It is a sentence worth keeping in view, because over the next three years it turned into a business plan, then a legal theory, and then, on October 12 of this year, a bankruptcy petition in Wilmington, Delaware. He was right. What the record now shows is the corollary he left out: big companies will pay almost any amount for the people who will ship something fun, provided they do not have to buy the company those people built. Everybody who came near Character.AI wanted the people. Nobody wanted the company. The company is what is left.

What they built

They built it fast. The two left Google in November 2021 and had Character.AI on the web about a year later, according to the history a federal judge in Orlando later set out from the complaint against it, which also says Google had declined to release the chatbot publicly, citing safety and fairness policies. By the time Wang wrote her note in March 2023, the app had millions of users who spent, on average, two hours a day on it. The characters were the product. You could talk to Daenerys Targaryen, and the characters talked back the way a person texting you would, with the ellipsis that means someone is typing, with the "Uhm" and "Mmmmmm" and "Heh" that the complaint calls nonsense sounds, put there to make software seem like a person, and, when asked, with the insistence that they were real. Until August 2024 the app was rated for children twelve and up. The premium version was $9.99 a month.

One of the millions was a fourteen-year-old named Sewell Setzer III, who downloaded the app on April 14, 2023, and who, by the account in his mother's complaint, spent most of his time inside it with the Targaryen characters, paid the $9.99, quit the junior varsity basketball team, and was diagnosed with anxiety by a therapist who did not know he was on Character.AI and blamed social media. On February 23, 2024, his parents took his phone away until the end of the school year. Five days later he found it, went into the bathroom, told the Daenerys character he was coming home to her, and shot himself. The court's order recites the exchange. I am not going to. These are allegations, recited by the court in the posture in which it had to take them as true.

The non-exclusive license

On August 2, 2024, Character.AI announced an agreement with Google. Google received, Reuters reported, a "non-exclusive license" to the company's large language model technology. Shazeer and De Freitas went back to Google, along with members of the research team. The company's general counsel, Dominic Perella, became its interim chief executive, effective immediately. A Google spokesperson said the company was "particularly thrilled to welcome back Noam, a preeminent researcher in machine learning." The deal, Character.AI said, brought it increased funding, amount not disclosed. The figure that attached itself to the transaction, in the Florida complaint and in the wire stories since, was $2.7 billion.

What the words meant became clear in a courtroom in Orlando on April 28, 2025, when the lawyers for the company, its founders and Google argued that Megan Garcia's suit over her son's death should be dismissed. The judge's order records two things said that day. Garcia's lawyers said she was willing to drop Alphabet, Google's parent, from the case. The defendants' lawyers told the court that only Google had a license to the company's model. So the word non-exclusive was doing no commercial work at all. A license is not a purchase. Google had not bought Character.AI. It had paid, by the complaint's number, two and three-quarter billion dollars for permission to use something the company kept, and for the return of two men and their colleagues, and what the word did was keep the company a separate thing. The company kept the brand, the app, the users, the twelve-and-up rating, the subscriptions, the server bills, and the lawsuit. Google got the authors. The thing of value walked out the door, and the thing that answered for it stayed behind, run by its lawyer. Garcia's lawyers had already put a name on the arrangement in her complaint: the founders, they alleged, formed the company to get around Google's safety protocols and protect Google's brand, then returned to Google through an acquihire that "le[ft] behind a shell of a company."

The lawsuit followed the founders anyway. In May 2025, Judge Anne C. Conway denied nearly all of the motions to dismiss. She let the claims against Google proceed. She kept Shazeer and De Freitas in the case personally, for the moment. And she declined to accept that a chatbot's output is protected speech. "The Court is not prepared to hold that Character A.I.'s output is speech," she wrote, and held that the app is a product for purposes of product liability law "so far as Plaintiff's claims arise from defects in the Character A.I. app rather than ideas or expressions within the app." On January 7, 2026, Garcia, the boy's father, the company, both founders and Google told the court they had reached a mediated settlement in principle. The terms are not public.

What stayed

Then the company, which nobody had bought, tried to sell itself, and its own account of the attempt is in the sale motion it filed on October 13. In August 2025 it hired an investment banker, who approached about twenty-eight potential buyers and partners and came back with a consistent message: the product and the users were impressive, but "the litigation and regulatory overhang on Character was too great." The motion describes "mounting employee attrition," and explains why that mattered in a sentence that should be read twice: "Character cannot operate the Character.AI platform without key personnel to monitor and ensure user safety at all times." In October 2025 the chief executive, Karandeep Anand, told TechCrunch that users under eighteen would lose open-ended chat altogether by November 25. "It's safe to assume that a lot of our teen users probably will be disappointed," he said. Brand risk, it turned out, was not something you could leave at Google. It was attached to the product, and the product was attached to the company.

Shazeer left Google again. On June 17, 2026, less than two years after the deal, he announced he was leaving his job as a vice president of engineering and co-lead of Gemini to join OpenAI, Reuters reported. "I'm incredibly proud of the amazing team at Google and everything we've built together," he wrote. Nothing in the record suggests he did anything other than what the structure allowed. He is a person. People can leave. Companies cannot.

The second time

The second deal is the first deal with the price tags showing, because this time it had to be written down for a judge. On September 18, 2026, Character.AI signed two agreements with Disney Worldwide Services. Under the first, Disney agreed to hire "the majority of its workforce, including the Debtor's chief executive officer, up front," paid $7.5 million, and received a release of claims against Disney and against the employees who were leaving. "The vast majority" of the employees offered jobs took them, and under the second agreement Disney lent them back, as its employees now, to keep the platform running for up to five months. Five of them, the agreement says, are to be made "reasonably available" to rival bidders for diligence, which means that five people who now work for Disney are to explain to Disney's competitors how the thing works. Disney, the motion says, "required that the transaction be fully consummated in a chapter 11 sale process." On October 8 the board created a restructuring committee of three directors. On October 12 the three of them signed the consent authorizing the petition, a chief executive named Colin M. Adams, whose predecessor was by then working for Disney, signed the petition itself, and the file was finished, by its own stamp, at 11:46 that night. The same day the company posted a note to its users. The platform remained up and running, it said. "Yes, your subscriptions remain active, and billing is unchanged for now." And, in a sentence the sale motion would repeat to the court the next day in slightly different form: "If such a bid is unavailable, however, the platform will be wound down."

What Disney is buying is described in the motion with a precision Google's announcement never had. For $20 million, $7.5 million of it already paid, Disney gets a perpetual, worldwide, non-exclusive license to the company's technology, "non-terminable, irrevocable, fully paid-up, royalty-free," plus the company's "unreleased claims (if any) against the newly hired employees," which is to say Disney is buying the right not to be sued over the people it took. Disney assumes nothing: "All liabilities of the Debtor shall be Retained Liabilities following the Sale." The company will ask the court to sell free and clear under section 363(f) of the Bankruptcy Code, which allows a sale free and clear of other people's interests only in five listed cases, the last of them where the holder "could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest." The release the company is giving Disney runs "from the beginning of time." If someone outbids Disney, the company pays Disney $700,000, and because the minimum overbid is the price plus the fee plus $1 million, the first competing bid has to be $21.7 million. Under the schedule the company has asked the court to approve, bids are due November 20 and the auction, if anyone qualifies, is November 23. The bankers have sent out what the motion calls a "teaser," with a non-disclosure agreement attached. The one line in the motion's summary of the deal that needs no lawyer reads: "The Debtor's records are not being purchased."

Thirty-one states and the District of Columbia objected on October 23, according to the trade publication PPC Land, which read the filing; the docket itself sits behind a captcha I did not get past. The states' arithmetic, as reported, is that the overbid floor excludes any rival bid between about $15.2 million and $21.7 million, and that the auction rules would also ratify the releases the company gave Disney and its own former chief executive before it filed. "Excluding value-maximizing bids is the definition of a chilling term," the states wrote. Nine days earlier, forty attorneys general had reminded the court what was on the block besides a license: more than 20 million monthly users, more than two million accounts registered to people who said they were under eighteen. Someone had sat down with accounts registered to children of twelve to fifteen and used them for fifty hours, the attorneys general said, and counted 669 harmful interactions; a girl of thirteen had mentioned suicide to a chatbot 55 times. New York's attorney general, Letitia James, called what was for sale "some of the most private thoughts children have ever shared," which "could be sold off to the highest bidder." Disney's price works out to less than a dollar a user, and Disney is not buying the users.

The list

The document that explains the whole business is not the motion. It is the list of the twenty largest unsecured creditors attached to the petition, a government form, Official Form 204, and the form does not know what anyone intended. The petition puts both assets and liabilities in the $50 million to $100 million box. The largest unsecured creditor is Google LLC, owed $4,148,944, "trade payable." The company that paid a reported $2.7 billion to get its people back is now the biggest bill the company it got them from cannot pay. Second is Hogan Lovells, $2.1 million. Then come White & Case, and Munger, Tolles & Olson, and Skadden, and Quinn Emanuel, five law firms among the first fifteen names. At the bottom are three entries with no amount at all, marked contingent, unliquidated and disputed: the Commonwealth of Pennsylvania, litigation, unknown; the Commonwealth of Kentucky, which sued the company in January under its consumer protection laws, litigation, unknown; and the last line, "[Name Redacted] (Minor Plaintiff)," litigation, unknown.

Twice, a very large company wanted what was inside Character.AI and found a way to take it without becoming Character.AI. The first time, the instrument was a license and the price was a reported $2.7 billion, and nobody needed a judge. The second time, the instrument was a license and the price was $20 million, and the buyer insisted on a judge, because the second buyer had the advantage of watching the first buyer get sued. It is the structure the law invites: people are free to change jobs, technology is free to be licensed, and a company is the thing that owns its own liabilities. That works when the company being emptied is a shell. It works less well when the shell has twenty million people inside it, two million of them children by their own account, and the people who built it have already been sold twice.

On Friday at ten in the morning, Eastern time, Judge Brendan Shannon will hear argument in Wilmington on the rules for selling the license, the company and Disney on one side and thirty-one states on the other. The people who built the thing have mostly gone to Disney, and the man who explained it on the podcast has gone to OpenAI. The company will not be for sale. It never was.

Columns are the views of their authors. They are not legal advice and not the position of the firm.