TLDR:

• Anthropic plans court action after rejecting Pentagon requests tied to surveillance and autonomous weapons permissions.
• Contract proposals included access to geolocation, browsing data, and financial records from commercial brokers.
• Defense contractors now face compliance risks when using Claude across enterprise and cloud operations.
• The designation places Anthropic’s $380 billion IPO strategy under legal and regulatory uncertainty.

Anthropic is heading to federal court. The AI company confirmed it will challenge the Department of War’s move to designate it a supply chain risk. 

Secretary Pete Hegseth announced the designation on X after months of failed contract negotiations. The move threatens to ripple far beyond a single Pentagon deal.

Read also: Sam Altman’s OpenAI Moves Ahead With Pentagon AI Deal After Anthropic Says No

Anthropic’s Pentagon Deal Collapsed Over Surveillance Demands

The breakdown started with two narrow exceptions Anthropic refused to drop. 

The company would not allow Claude to be used for mass domestic surveillance of Americans. It also rejected fully autonomous weapons applications. Those were the only two lines Anthropic would not cross.

But details surfaced through Axios changed the story significantly, according to an X post by market observer Shanaka Anslem Perera. 

The Pentagon’s proposed compromise would have required access to Americans’ geolocation data. It also included web browsing history and personal financial records sourced from data brokers. 

Under Secretary Emil Michael was reportedly offering this deal by phone at the exact moment Hegseth posted the designation publicly.

Anthropic pushed back directly. In a published statement, the company called the designation legally unsound and historically unprecedented. No American company has ever been publicly hit with this classification before. It has typically been reserved for foreign adversaries.

The company also clarified what the designation actually covers under 10 USC 3252.

A supply chain risk designation can only restrict Claude’s use on Department of War contract work. It cannot reach commercial API access, claude.ai subscriptions, or enterprise licenses. Anthropic’s legal team is betting the court agrees.

Pentagon Accepted OpenAI’s Identical Safety Terms Hours Later

The business stakes are enormous. Eight of the ten largest US companies currently use Claude. That includes defense contractors, cloud providers, banks, and consulting firms. The $200 million Pentagon contract is not the core concern. The $14 billion enterprise ecosystem is.

Every general counsel at every Fortune 500 firm with Pentagon exposure now faces the same question. Is using Claude worth the legal uncertainty? That question alone slows procurement cycles and complicates renewals.

Anthropic’s expected IPO, reportedly targeting a $380 billion valuation with $30 billion in new capital, now sits on hold. No underwriter will price an offering while the company carries a designation alongside Huawei.

Hours after blacklisting Anthropic, the Pentagon accepted OpenAI’s proposed safety framework. That framework contained the same two red lines: no mass surveillance, no autonomous lethal weapons. Anthropic said no amount of pressure will shift its position on either point.