The U.S. Justice Department is looking into whether Google broke antitrust laws with its agreement involving Character.AI.
The investigation is focused on whether Google designed the deal to bypass the usual government scrutiny that comes with mergers, while still gaining access to the AI technology developed by Character.AI.
The DOJ is examining if Google intentionally set up the Character.AI agreement to avoid the regulatory checks that are standard for mergers and acquisitions.
In this arrangement, the founders of Character.AI returned to Google, and in exchange, Google obtained a non-exclusive license to use the startup’s advanced AI technology without actually acquiring the company.
This setup allowed Google to gain important talent and technology while Character.AI remained an independent entity.
In Silicon Valley, such deals are often seen as smart ways to bring in specialized skills for new projects. However, regulators are increasingly worried that large tech firms might be using these kinds of agreements to eliminate potential competitors without facing antitrust investigations.
This inquiry is part of a wider effort by the Biden administration to monitor competition in the fast-changing AI industry, particularly looking at whether deals between major tech companies and AI startups give these giants an unfair edge.
Although the investigation is still in its early stages, it adds to the existing antitrust issues facing Google, which also includes separate lawsuits regarding its dominance in online search and digital advertising.
The deal between Google and Character.AI includes a non-exclusive license for Google to use the AI technology created by Character.AI, allowing Google to benefit from these innovations without taking control of the company.
This licensing arrangement lets Character.AI keep operating on its own while Google gains access to valuable AI tools that can improve its Gemini platform and other services.
Google also provided additional funding to Character.AI, although the specific amount has not been revealed, and brought back key personnel, including co-founders Noam Shazeer and Daniel De Freitas, along with about 30 researchers.
In August 2024, Character.AI signed a non-exclusive licensing agreement with Google, allowing the tech giant to incorporate the startup’s AI technology into its offerings.
While the financial terms were not disclosed, the deal provided Character.AI with extra funding to grow and create tailored AI products for users worldwide.
As part of this strategic partnership, the co-founders returned to Google, with Shazeer joining the Google DeepMind research team along with around 30 members of Character.AI’s workforce.
This agreement marks a notable change in Character.AI’s direction. The company will continue to develop chatbots but will stop creating its own models, opting instead to use open-source alternatives like Meta’s Llama 3.1.
Dominic Perella, who was previously Character.AI’s general counsel and joined in mid-2023 after working at Snap, has been appointed as interim CEO.
The deal reportedly values Character.AI at about $2.5 billion, with investors receiving approximately $88 per share, which is about 2.5 times the price from the company’s last funding round that set its valuation at $1 billion.
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