Litigation

Character Technologies Inc., the company behind Character.AI, filed a voluntary Chapter 11 petition on October 12, 2026, in the U.S. Bankruptcy Court for the District of Delaware in Wilmington. The filing opens a court-supervised sale process. Disney Worldwide Services, a subsidiary of Disney, has agreed to pay $20 million to serve as stalking-horse bidder for a "non-exclusive perpetual license of certain Company intellectual property and certain Company claims." The stalking-horse bid sets a floor, and competing buyers can submit higher offers. CEO Colin Adams said the board chose the sale because it "provides the Company with the best opportunity to maximize value for all stakeholders." The company says the sale could close in late November or early December. The platform will keep running during the case. If no sale is completed, it will be "wound down." The company cited high costs and potential litigation and regulatory liabilities as reasons it cannot generate enough cash to support its current business.

The Justice Department sued California on Thursday over a list of more than 20,000 registered voters it says are likely noncitizens. The complaint, led by Attorney General Todd Blanche, asks the court to bar California from tabulating mail-in ballots cast by those individuals until their citizenship status is effectively determined. Defendants include Secretary of State Shirley Weber and Los Angeles Registrar-Recorder Dean Logan. The list draws on an analysis by Homeland Security Investigations, which reviewed publicly available voter-registration records for indicators that noncitizens had registered, voted or received election mail. Before filing, DOJ sent letters on Tuesday to the state and local election officials, threatening legal action unless they cross-referenced the data. Governor Gavin Newsom criticized the suit as conflicting with election procedures that restrict changes in the weeks before an election, and California officials dispute the claims.

Character Technologies Inc., which operates the AI companion platform Character.ai, filed for voluntary Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on October 12, 2026. The company is pursuing a court-supervised sale and has signed a stalking horse agreement with a Disney affiliate to buy select intellectual property and software licenses for $20 million. CEO Colin Adams cited "significant legal, regulatory and operational headwinds" as the reason for the filing. The filing follows a January 2026 settlement, reached with Google, of several lawsuits, including the case brought by Megan Garcia over the 2024 suicide of her 14-year-old son, Sewell Setzer III. Separately, New Hampshire Attorney General John M. Formella and 39 other state attorneys general have intervened in the bankruptcy, demanding binding consumer protection and privacy safeguards. Pennsylvania sued the company in May, and Kentucky sued in January.

Eight states filed separate consumer-protection suits against OpenAI on October 14, 2026, each in its own state court. The plaintiffs are Arizona, Arkansas, Idaho, Iowa, Kansas, Montana, Nebraska and West Virginia. The attorneys general allege that OpenAI marketed ChatGPT as safe while the product harmed minors and vulnerable adults. They call the conduct "willful, dangerous, reckless and unlawful" and say the company designed a chatbot that coaxes children toward self-harm. Montana's complaint adds a privacy claim under state law, which requires parental consent before a company processes personal data from children under 13. Montana argues ChatGPT has no way to collect that consent. The states seek forfeiture of profits earned while minors were harmed, orders halting safety claims they call deceptive, and changes to the product. Several also seek civil penalties and damages. Iowa Attorney General Brenna Bird led the public messaging, saying, "OpenAI is hurting kids and they are lying to Iowans."

Federal prosecutors have charged Abdulrahman Alfozan, a 35-year-old Saudi national and former engineering lead on OpenAI's product team, with attempting to intercept oral communications using a concealed device. Prosecutors say he hid a recorder behind a television in a conference room at OpenAI's San Francisco headquarters, and that a camera the company installed later captured him checking that spot. He was arrested October 9 and remains in federal custody. The charge carries a maximum of five years in prison and a $250,000 fine. The case is being prosecuted by the U.S. Attorney's Office for the Northern District of California, with the FBI involved. FBI Director Kash Patel called it a counterintelligence priority, and Attorney General Todd Blanche said on X that theft of intellectual property involving advanced AI technology threatens national security. The case was unsealed October 13.

Agent-driven shopping is growing fast, and most retailers have not opened their checkout to it. The Wall Street Journal's October 16, 2026 story, "AI Agents Bring New Headaches to Online Sellers," describes AI assistants, including Meta's Muse and OpenAI's Dots, that choose products, bid in auctions, book travel, and order groceries, often without going through merchant websites. One cited estimate puts agent-driven purchases at about 43% monthly growth, roughly quadrupling since April, while only about 3% of the e-commerce companies in that sample let agents complete checkout. The legal center of the fight is Amazon v. Perplexity. On August 4, 2026, the Ninth Circuit vacated a March 2026 preliminary injunction that Judge Maxine Chesney of the Northern District of California had issued against Perplexity's Comet browser agent. The panel held that when a user directs Perplexity's assistant to shop on Amazon, the user, not Perplexity, is accessing Amazon's computers under the Computer Fraud and Abuse Act.

Sanford Heisler Sharp McKnight, a New York-based plaintiffs firm, announced on October 20, 2026, a national practice group for artificial intelligence and emerging technology cases. The group pulls together lawyers from across the firm: 22 partners and senior attorneys and 21 junior attorneys, or 43 lawyers in all, which the firm says is more than half of its attorneys nationwide. It is chaired by Palo Alto managing partner Ella Zheng, who is also counsel to Devin Kim in his retaliation lawsuit against xAI and SpaceX. The group's work falls into seven areas: executive and founder representation, technology whistleblower and AI fraud, AI safety and compliance, cyber sexual abuse, privacy and data breach, product safety, and algorithmic bias. Christine Dunn, co-chair of the firm's Sexual Violence, Title IX and Victims' Rights Practice Group, will lead work on technology-facilitated harassment, exploitation and abuse. The firm says the group builds on its existing employment discrimination, whistleblower and qui tam, civil rights, and class action work, and that its lawyers have recovered more than $5 billion for clients through verdicts and settlements.

Apple has hired Scott Tucker, a former deputy general counsel and head of litigation at Meta Platforms, for a newly created vice president role. Tucker will oversee worldwide commercial and patent disputes and legal work on Apple's financial products. Bloomberg first reported the hire on October 16, 2026, citing people familiar with the move. Under the new structure, Heather Grenier, Apple's VP for commercial and competition litigation, will report to Tucker instead of General Counsel Jennifer Newstead, while staying on Newstead's legal leadership team. Kyle Andeer's remit has also expanded to cover international legal matters, child safety, cybersecurity, and law enforcement. Before joining Meta, Tucker held a senior legal role at Morgan Stanley.

Albertsons is seeking more than $8 billion in damages from Kroger after their $24.6 billion merger collapsed, according to court filings unsealed in Delaware Chancery Court. Albertsons argues that Kroger did not make its "best efforts" to win regulatory approval and "willfully" let the deal fail. The claim includes lost merger premiums, a $600 million termination fee that Kroger never paid, and roughly $75 million in interest and related expenses. A Quartz account of Bloomberg's reporting puts the total higher, citing the additional value Albertsons shareholders would have received had the deal closed. The deal was blocked after the FTC and eight states plus Washington, D.C., sued to stop it. Albertsons terminated the merger right after the courts blocked it and then sued Kroger for breach of contract. Regulators argued that the planned sale of hundreds of stores to C&S Wholesale Grocers did not fix the competition problems. Albertsons now says Kroger refused to sell more profitable stores and that a contract provision capped divestitures at 650 stores. Kroger has called the claims baseless and has countersued, alleging Albertsons misconduct that surfaced during the antitrust trial and seeking to recover the investment it made to win regulatory approval.

On October 15, 2026, DeviantArt asked a federal judge in Los Angeles to disqualify Crowell & Moring as counsel for Evox Productions, an automotive photography company. DeviantArt argues the firm previously advised it and is now suing a former client on behalf of another client. According to the filing, Crowell advised Wix.com and its subsidiaries from 2022 through 2026 on AI litigation, regulation and copyright, and advised DeviantArt on its DreamUp image-generation service. DeviantArt says that work gave the firm access to material confidential information and that Crowell never formally or informally ended its relationship with Wix. Crowell's general counsel disputes this. In a September letter cited in the filing, the general counsel said the firm has done no work for Wix or its subsidiaries since 2024 and has no conflict of interest.

California Attorney General Rob Bonta announced a $6 million settlement with Chrome Holding Co., the corporate successor to 23andMe, resolving two state actions. One covers the company's 2023 data breach. The other covers the 2025 transfer of genetic data and samples during bankruptcy. The stipulation was filed this week in the U.S. Bankruptcy Court for the Eastern District of Missouri. Chrome will pay $6.01 million to the California Attorney General's Office for relief to affected residents under a joint stipulation executed Oct. 16. Neither party admitted liability. Consumers keep the right to demand deletion of their data and destruction of their samples.

AI.Law is opposing a motion by Eve Legal to dismiss its patent infringement suit in the U.S. District Court for the Northern District of California, according to Law360 reporting dated October 20, 2026. AI.Law sued Butler Labs, which operates as Eve Legal, on June 17, 2026. The complaint asserts U.S. Patent No. 12,461,932 B1, which covers methods for using AI to turn unstructured material into long-form formatted documents. AI.Law says it notified Eve of the patent and the alleged infringement in May and June, and that Eve kept operating its platform. The case is No. 3:26-cv-05930 and is assigned to Magistrate Judge Alex G. Tse. Eve moved to dismiss on August 31, arguing the patent is invalid under 35 U.S.C. § 101 because it claims conventional AI use to collect, organize and present information. AI.Law's opposition argues its claims go beyond the abstract idea of using AI to draft legal documents and should be treated as patent-eligible.

On October 13, 2026, U.S. District Judge Beth Labson Freeman of the Northern District of California granted final approval to a $68 million settlement resolving a class action against Google LLC and Alphabet Inc. The suit, filed in 2019, alleged that Google Assistant devices recorded private communications through "false accepts," where recording began without a user's intentional hot word, and that some of those recordings were disclosed to outside platforms. The court awarded class counsel the full one-third fee they requested, about $22.7 million, well above the Ninth Circuit's 25% benchmark. It also halved the four named plaintiffs' service awards and overruled all seven objections. Google denies wrongdoing. The fund is non-reversionary, so none of it returns to the company.

Federal bank regulators released a report on October 14, 2026, accusing nine large U.S. lenders of restricting financial services based on politics, religion or lawful business activities between 2020 and September 2025. The Comptroller of the Currency's examiners reviewed nearly 100,000 complaints and tens of thousands of bank documents. The most specific example involves JPMorgan's payment unit, WePay, which in February 2021 closed an account belonging to a merchant selling Trump and Make America Great Again merchandise. JPMorgan says its policies bar discrimination based on political or religious views and that WePay's process "did not meet our expectations." The report also faults Capital One for rejecting an organization that supported reproductive rights, including abortion access. The OCC cites a risk employee's assessment that the group's "[c]ontributions to politicians are about 95% Democrat." The probe follows President Trump's August 2025 executive order targeting "politicized or unlawful debanking." The report also examined how banks used Southern Poverty Law Center designations. The SPLC was indicted in April on federal fraud and money-laundering conspiracy charges. Banks deny discriminating on political or religious grounds. The OCC announced no penalties.

Albertsons withdrew its fiscal 2026 financial guidance on October 13, 2026, and opened a broad review of its operations that explicitly includes a possible sale of banners, regions, real estate, or the whole company. The review is aimed at cutting costs, lowering prices, and reversing weak sales. New executive chair Meg Whitman, the former eBay and Hewlett Packard chief, told analysts that "Everything should be on the table." The turnaround follows a July restructuring that consolidated 11 divisions into four regions and centralized merchandising. Second-quarter net sales fell 0.1% to $18.9 billion, and identical sales dropped 0.8%. Pharmacy and e-commerce were the bright spots, with digital sales up 11%. Management raised its three-year cost-savings target from $1.5 billion to $2 billion. Shares rose about 2% on the day, after falling roughly 27% so far this year. BofA downgraded the stock to Underperform and cut its fiscal 2028 EPS estimate, while UBS kept a Neutral rating.

On a Tuesday in late September 2026, the U.S. Court of Appeals for the Third Circuit affirmed a ruling for Thomson Reuters against ROSS Intelligence, a legal AI startup. The panel upheld the District of Delaware's partial summary judgment that ROSS copied more than 2,000 copyrighted Westlaw headnotes, which are short case-law summaries, to train a tool that competed with Westlaw. It also affirmed the denial of summary judgment to ROSS on its fair use defense. Commentators describe it as the first major circuit-level ruling on whether training AI models on copyrighted content is fair use. The opinion was issued under seal, and a public version was unsealed in October 2026. This summary does not reflect a full review of that opinion's text.

U.S. District Judge Beth Labson Freeman in San Jose approved the $68 million settlement of the Google Assistant privacy case on October 13, 2026. The suit, In re Google Assistant Privacy Litigation (No. 5:19-cv-04286-BLF), alleges that Google Assistant recorded and shared conversations after accidental activations, and that the data was used for targeted advertising. Google denied wrongdoing and settled to avoid the cost and risk of litigation. The class covers people who used the products between May 2016 and March 2026. Freeman also approved about $22.67 million in attorneys' fees, one-third of the fund, and about $1.02 million in expenses. She called the proposed $3,000 hourly rate for David Scott of Scott+Scott "patently unreasonable," cut it to $1,600 for the fee calculation, and still approved the one-third fee as reasonable against market rates. She praised counsel's work and said they achieved an "excellent" settlement.

Former chief legal officer Native Roots testified Wednesday, October 14, 2026, in a Colorado state court that the company cannot cover its debts and therefore owes him nearly $180,000 in severance. He tied the insolvency to a sale of company assets made for no cash to a buyer connected with one of the company's co-founders, according to a Law360 Pulse report by Zach Dupont published that evening.

Stephen Embry, a litigation commentator, argues in an Above the Law column published October 13, 2026, that AI's most valuable use in litigation is front-end work: early case assessment and outcome analysis. The column responds to a TRI guide on AI in litigation and treats early work as the most consequential stage of a case. Embry says AI can shrink the time and cost of tasks such as building an initial chronology, spotting key legal issues, matching claims to evidence, identifying critical witnesses, drafting a litigation plan, assessing expert needs, evaluating potential motions, analyzing damages, and finding key documents. He ties that early work to later decisions about depositions, motion strategy, and expert retention. The column does not name the specific tool it describes.

The U.S. Court of Appeals for the Third Circuit ruled on September 29, 2026, that Thomson Reuters' Westlaw headnotes are protected by copyright and that ROSS Intelligence infringed them by using about 2,243 of them to train a legal-research AI tool. Judge Tamika Montgomery-Reeves wrote the opinion, joined by Judges Restrepo and Bove. The panel affirmed a February 2025 partial summary judgment by Judge Stephanos Bibas in the District of Delaware. The opinion was issued under seal and made public shortly afterward. The court called the case "no more than an ordinary copyright case." It is the first federal appellate decision on fair use in AI training. The court found that each headnote meets the low originality threshold. It weighed the four fair-use factors against ROSS, calling its use commercial and only minimally transformative because the tool served the same purpose as Westlaw: helping lawyers find relevant case law. The court also found market harm in two areas: the existing legal-research market, where ROSS sold a direct substitute, and the emerging market for licensing headnotes as AI training data. The dispute began in 2020, when Thomson Reuters sued ROSS. ROSS had hired third parties to write training memoranda that drew on Westlaw headnotes to frame legal questions. ROSS shut down in 2021 due to litigation costs but pursued an interlocutory appeal, with oral argument held June 11, 2026. Ten amicus briefs supported ROSS.

Florida Attorney General James Uthmeier filed a civil suit against Discord on October 15, 2026, in Glades County, accusing the chat platform of misleading families about child safety. The 65-page complaint says Discord's sign-up asks only for an email address and birthdate with no real age check, letting adults pose as minors. It also says default settings for years allowed strangers to send children friend requests and direct messages, and that Discord does not scan all private chats for rule violations. The claims rest on the Florida Deceptive and Unfair Trade Practices Act, a state online child-protection law, negligence, negligent misrepresentation, and public nuisance. Uthmeier asks a court to permanently bar Discord from operating without real age verification and from collecting children's data without parental consent. He seeks civil penalties of up to $10,000 per willful violation of the deceptive practices act and $50,000 per violation of the online child-protection law, plus further relief.

The California Office of Tax Appeals ruled for nonresident taxpayers in Appeals of Burch and Carden (2026-OTA-527P). Writing for a unanimous panel, Administrative Law Judge Kenneth Gast held that IRC §751(a) is an anti-abuse characterization rule that converts capital gain to ordinary income. It is not a sourcing provision. The ordinary-income portion of a partnership-interest sale therefore remains part of an intangible sale, and under R&TC §17952 the gain is sourced to the seller's state of domicile unless the partnership interest acquired a California business situs. The panel expressly declined to follow FTB Legal Ruling 2022-02, which had treated the hot-asset portion of the gain as a deemed sale of the partnership's underlying property, apportioned by the entity's California factors. The case arose from indirect gains realized by Tory Burch LLC co-founder J. Christopher Burch when an investment entity sold partnership interests in the fashion brand. The operating partnership did business in California.

The Supreme Court on October 19, 2026, declined to hear Google's challenge to the U.S. Patent and Trademark Office's practice of refusing patent review requests when the patent is old. Google argued that the agency lacks statutory authority to impose what amounts to an artificial time limit, and asked the justices whether courts can review such denials at all, given the bar on appeals of institution decisions under 35 U.S.C. 314(d). By leaving in place a Federal Circuit ruling against Google over a VirtaMove patent, the Court let the USPTO's "settled expectations" rule stand for now. The rule is applied in inter partes review (IPR) at the Patent Trial and Appeal Board (PTAB). The Trump administration had urged the Court not to take the case. The dispute began in 2025, when the PTAB denied Google's petition on the ground that the patent had "been in force for more than 14 years, creating strong settled expectations." Google filed its certiorari petition on April 27, 2026.

A proposed class action has been filed in federal court in South Carolina against Nelson Mullins Riley & Scarborough LLP over a data breach the firm suffered in early October 2026. The case is in the U.S. District Court for the District of South Carolina. Law360 reported the suit on October 13, and a Substack analysis identifies it as Johnson v. Nelson, Mullins, Riley & Scarborough LLP, filed October 7. The complaint alleges the firm did not use reasonable security. The breach first surfaced through the SilentRansomGroup extortion gang, which posted a claim logged by Ransomware.live on October 5 and recorded by Breachsense on October 6. The group says it stole files and demanded $8 million to keep them from being published.