Character Technologies, Inc – €158,000 Fine (Italy, 2026)

Character Technologies, Inc (the controller) is a company established in the US that operates the site Character.AI. Character.AI is a generative AI service that allows users to create and interact through chat with virtual characters that already exist or are created at the moment. The controller made this available to data subjects in Italian, and had a specific version for children. The DPA initiated an ex-officio investigation in 2024. The DPA requested information related to the LLM models used by the controller, the provision of the service, and data transfers. The controller provided a DPIA, and stated that it introduced an age verification system that required data subjects to register their date of birth. In 2025, the controller announced it would prevent underage data subjects from accessing open chat rooms, and would begin processing personal data of data subjects in the EEA to post-train its generative AI systems. The DPA first clarified that the GDPR is applicable even if the controller was established outside of the EU, in accordance with Article 3(2) GDPR. The DPA took into account the fact that the service was available in Italy and in Italian, as well as the privacy policy also applying to EEA residents. Given that the controller did not have an establishment in the EU, the one-stop-shop mechanism did not apply and the DPA was competent. The DPA found a violation of Articles 12(1), 13(1) and (2), and 14(1) and (2) GDPR. The DPA considered that the controller had failed to meet its information obligations. In terms of the controller’s privacy policy, the DPA considered that the controller had not provided data subjects’ with clear information regarding its processing activities, data transfers, or data subjects’ right to object and opt out. In addition, the controller failed to designate a representative in the EU, and included misleading and inaccurate statements on the processing of personal data for purposes of post-training LLMs for the service.See also WP Guidelines on Transparency under Regulation 2016/679, 11 April 2018 (WP260 rev.01), https://ec.europa.eu/newsroom/article29/items/622227 However, the DPA also took into consideration that the controller had updated its privacy policy to make its language clearer. In terms of its pre-training activities, the DPA stated that the controller had failed to provide adequate information and therefore violated Articles 14(1) and (2) GDPR. The DPA dismissed the controller’s argument that it did not have the obligation to provide this information due to the data being collected by third parties from open sources. The DPA stated that the controller had the obligation to verify whether personal data was present. In addition, the exemption under Article 14(5)(b) GDPR does not exempt the controller from having the obligation to implement appropriate measures to protect data subjects’ rights. However, the DPA did not find a violation of Articles 21(1) and (4). The DPA referred to the EDPB opinion on processing personal data in relation to AI systems. The EDPB recommended controllers to adopt measures for data subjects to exercise their rights, including providing the option to provide data subjects with the option to object unconditionally before the processing takes place.See EDPB Opinion 28/2024 on certain data protection aspects related to the processing of personal data in the context of AI models, 17 December 2024, margin 102, https://www.edpb.europa.eu/system/files/documents/2024-12/edpb_opinion_202428_ai-models_en.pdf The DPA considered that this opinion went beyond the literal wording of Articles 14 and 21 GDPR. This interpretation could not, in the DPA’s view, be interpreted retroactively to the controller’s processing activities. The DPA found a violation of Articles 24(1) and 25(2) GDPR. The DPA considered that the controller had failed to implement adequate technical and organisational measures to verify data subjects’ age. During its investigations, the DPA found that the controller’s age verification systems were not effective, as they allowed data subjects’ to access the service even after self declaring to be younger than the minimum age limit set by the controller. The DPA also found that the accounts were set to public by default. Therefore, the controller had failed to implement appropriate measures to protect underage data subjects, even if the GDPR does not set a harmonised and binding standard in relation to age verification. The DPA also found a violation of Articles 5(2) and 35 GDPR. Under Article 5(2) GDPR, the controller has the obligation to proactively demonstrate compliance with the GDPR. The DPA stated that a key tool to do this is through data protection impact assessments (DPIAs). Controllers are obliged to carry out a DPIA under Article 35 GDPR if the processing is likely to result in a high to the rights and freedoms of data subjects. The controller failed to do a DPIA on time in relation to providing the service to underage data subjects, as well as in relation to its processing activities for the purpose of pre-training its LLM.See also WP29 Guidelines on Data Protection Impact Assessment (DPIA),4 October 2017 (wp248rev.01), https://ec.europa.eu/newsroom/article29/items/611236/en The DPA stated that the controller should have done this before launching the service in 2022, as the processing activities had a presumed high risk to freedoms and rights of data subjects (e.g. the use of large scale processing or processing data of vulnerable data subjects). However, the DPA acknowledged that the controller progressively improved its compliance by doing a (late) DPIA and updating it. Finally, the DPA found a violation of Article 27(1) GDPR, as the controller belatedly designated a representative in the EU. The DPA stated that the exemption under Article 27(2) GDPR did not apply. The DPA fined the controller €158,000. The DPA also ordered the controller to bring its privacy policy and storage of personal data for purposes of pre-training its LLM into compliance with the GDPR. The DPA also ordered the controller to implement effective age verification mechanisms.