WASHINGTON — The official designation of Anthropic as a “supply chain risk,” delivered to the company Wednesday, imposed much milder penalties on the AI giant than Defense Secretary Pete Hegseth originally threatened, Anthropic CEO Dario Amodei said Thursday on the company’s website.
After Anthropic’s refusal to accept new contract language allowing “all lawful use” of its Claude chatbot by the military, Hegseth declared on Feb. 27 that “no contractor, supplier, or partner that does business with the United States military may conduct any commercial activity with Anthropic.”
That same day, President Donald Trump declared that all federal agencies, not just the Defense Department, would “IMMEDIATELY CEASE all use of Anthropic’s technology,” albeit over “a Six Month phase out period.”
The actual terms of the March 4 designation, however, were much narrower, Amodei said Thursday. “The vast majority of our customers are unaffected by a supply chain risk designation,” he wrote. “It plainly applies only to the use of Claude by customers as a direct part of contracts with the Department of War, not all use of Claude by customers who have such contracts.”
Microsoft, which uses Anthropic’s Claude in its software suite, concurred in statements to several news outlets. “Our lawyers have studied the designation and have concluded that Anthropic products, including Claude, can remain available to our customers — other than the Department of War — through platforms such as M365, GitHub, and Microsoft’s AI Foundry and that we can continue to work with Anthropic on non-defense related projects,” a company spokesperson told CNBC.
Despite the ban being less harsh than feared, Amodei said he still intends to sue the government to overturn the designation. “We do not believe this action is legally sound, and we see no choice but to challenge it in court.”
At the same time, he struck a conciliatory, even apologetic tone in public statements. “I want to completely apologize,” he told The Economist, for harsh denunciations of the Pentagon and rival OpenAI he sent Anthropic employees that then were leaked to the press. He added that “we had been having productive conversations with the Department of War over the last several days.”
In response, Pentagon CTO Emil Michael, the Undersecretary for Research and Engineering, shared in an X post Thursday that “there is no active @DeptofWar negotiation with @AnthropicAI.”
Michael, a former tech exec himself, previously told reporters it was “undemocratic” for the company to “dictate” restrictions on the military’s use of AI that went beyond the laws Congress had passed. Michael, Hegseth, Pentagon spokesman Sean Parnell and other Pentagon officials have publicly denounced Anthropic for insisting on limitations beyond those already in law and regulation on the use of AI for mass surveillance and autonomous weapons.
What Now?
With such mixed signals coming from both sides, experts who spoke to Breaking Defense struggled to predict what would happen next. But two of the three doubted that the supply chain risk designation would stand up in court.
Hegseth’s initial threat last week was simply more than the law allows, said Paul Scharre, a former Army ranger who’s now executive vice president of the Center for a New American Security.
“What Hegseth said on Friday [Feb. 27] is just not what the supply chain risk designation means,” Scharre told Breaking Defense. “It means no one can use Anthropic tools when executing a DoD contract.”
But even the narrower ban actually imposed on Anthropic in this week’s official letter would probably not hold up in court, he went on: The law was written to keep foreign companies from sabotaging the military supply chain, not to punish American companies for not doing business on the Pentagon’s terms.
“I fully expect Dario to take legal action,” agreed Jack Shanahan, an AI consultant and commentator. Shanahan, who previously led the military’s AI-powered Project Maven and then the Pentagon’s Joint AI Center, told Breaking Defense, “He has way too much at stake to be booted out of every government contract. There are billions of dollars at stake here.
“The early expert consensus is that the most draconian punishment — supply chain risk — won’t hold up in court,” he added. But too much damage has already been done to the often-rocky relationship between the Pentagon and Silicon Valley, Shanahan lamented, undoing a decade of bridge-building.
“This supply chain risk designation will go down in history as a real technology low point of this administration,” Shanahan said. “You cannot, for a second, claim you want to ‘dominate globally in AI’ while simultaneously burying a shiv in the heart of one of the biggest and most important AI companies in the world. Xi Jinping is thrilled.”
Shanahan’s successor at the Joint AI Center, however, had a more optimistic take. “I think that there’s a rapprochement here that is in the making,” said Michael Groen, now working as an advisor to industry.
Even if Anthropic can’t come to terms with the Pentagon, “at the end of the day, there will be plenty of AI capabilities and companies that want to work with Defense, that want to make sure that we have the best capability, that share the values of responsible technology and responsible warfighting,” Groen told Breaking Defense, pointing to the military’s long tradition of regulating its own use of technology, including AI.
“We can do this,” Groen said. “It’s natural that we have some of these dust-ups, [but] it’s shameful if our technology leaders and our military leaders can’t come to a place that supports our young warfighters — and also does it morally and ethically.”
