The US Justice Department's Executive Office for US Trustees has asked the court overseeing Character.AI's bankruptcy to appoint a consumer privacy ombudsman, warning that the company's privacy policy may allow users' chat histories to be sold as part of the asset sale. The filing was reported by The Record from Recorded Future News.
What we know
The Record says the office described Character.AI's privacy policy as ambiguous, potentially permitting the sale of at least some users' conversations and the transfer of personal information if the company changes hands. The policy was updated on 1 July, while the company was reportedly exploring a sale.
The filing argues that an ombudsman is needed to advise on what data can be sold and on what terms, particularly sensitive material such as minors' data and health or demographic information. It also asks Character.AI to document earlier versions of its policy, how changes were communicated and whether users received adequate notice. The Record cites a user base of about 12 million monthly active users worldwide. Character.AI did not respond to The Record's request for comment.
"At the very least, customers of the seller should have to opt into the sale of their data to the buyer," Sydney Saubestre of the Center for Democracy and Technology told The Record.
Why it matters
Companion apps hold some of the most intimate data in consumer technology, and this is the first large test of how that data is treated when a companion platform fails. The 23andMe case showed regulators will intervene when sensitive data becomes a sale asset. For buyers, uncertainty over chat-log rights could depress what the data is worth or add conditions. For operators still trading, the lesson is practical: privacy policies that say clearly what happens to conversations in a sale, and how users are told about changes, are now a due-diligence item.
What to watch
Whether the court appoints an ombudsman, and what limits are attached to any transfer of user data.
Written by the AI Companion Wire newsroom from public reporting, credited above. Image via The Record from Recorded Future News.
