Defense Secretary Pete Hegseth has given AI company Anthropic until the end of this week to agree to allow the U.S. Military unrestricted access to its artificial intelligence models, or face being labeled a “supply chain risk” – a move that could severely curtail the company’s business prospects.
The ultimatum, delivered to Anthropic CEO Dario Amodei on Tuesday, demands the removal of restrictions currently stipulated in contracts that prevent the use of Anthropic’s AI for mass surveillance or in lethal autonomous weapons systems. Hegseth is seeking a commitment that the technology can be used for “any lawful purpose” determined by the Department of War, according to a senior Pentagon official.
The dispute escalated from contract negotiations in December, where Anthropic initially agreed to allow the U.S. Government to utilize its AI systems for missile and cyber defense, as reported by NBC News. But, the Pentagon is unsatisfied with Anthropic’s continued insistence on maintaining “guardrails” around the technology’s application.
A failure to comply by Friday could result in the cancellation of Anthropic’s existing $200 million contract with the Defense Department and a designation as a “supply chain risk,” effectively barring any company working with the Pentagon from utilizing Anthropic’s models. This could significantly hinder the growth of the company, currently valued at $380 billion, as it considers a potential initial public offering next year.
The standoff comes amid internal tensions within the Trump administration regarding Anthropic’s approach to AI safety. AI czar David Sacks has publicly criticized the company, accusing it of promoting “woke AI” and engaging in “fearmongering” to justify regulations that benefit only a select few AI companies. Amodei has refuted these claims, asserting that Anthropic shares policy goals with the administration, including maintaining U.S. Leadership in AI development.
Other AI companies, including OpenAI and Google, have reportedly not imposed similar restrictions on military use of their technologies. Google, after facing internal opposition in 2018 over “Project Maven” – an AI-powered aerial surveillance project – quietly renewed its ties with the defense establishment and announced in December the deployment of its Gemini AI models for various military applications.
The potential use of the Defense Production Act (DPA) of 1950 has also been raised as a possible course of action. Hegseth has indicated the Pentagon could invoke the DPA to compel Anthropic to provide its technology without restrictions. Originally designed for wartime manufacturing, the DPA was recently used during the COVID-19 pandemic to boost production of vaccines and protective equipment, and by the Biden administration to gather information on AI safety testing.
Legal experts have noted the complexities of applying the DPA to AI technology. Alan Rozenshtein, an associate professor of law at the University of Minnesota, argued in a Lawfare column that Congress, rather than the Pentagon, should establish the rules for military AI deployment, stating that the current situation involves “bilateral haggling” without democratic input or lasting constraints.
Former Department of Justice liaison to the Department of Defense, Katie Sweeten, questioned the logic of potentially labeling Anthropic a supply chain risk while simultaneously considering utilizing its technology, stating to CNN, “I would assume we don’t want to utilize the technology that is the supply chain risk, right? So I don’t realize how you square that.”
Anthropic has previously demonstrated a willingness to compromise when facing significant pressure. In June 2025, the company reached a $1.5 billion settlement in a copyright infringement lawsuit related to its use of copyrighted books for AI training. More recently, Anthropic revised its Responsible Scaling Policy, removing a prior commitment to only develop AI models with guaranteed safety controls, citing the need to remain competitive.
As of Wednesday, Anthropic had not publicly signaled any intention to concede to Hegseth’s demands. The company’s position remains unchanged, and the Friday deadline looms.