Anthropic said Thursday that the Pentagon’s designation of the AI company as a “supply chain risk to America’s national security” is unlikely to have the broad business impact Defense Secretary Pete Hegseth suggested last week.

Hegseth had posted on X that, following a breakdown in contract talks with Anthropic, “no contractor, supplier, or partner that does business with the United States military may conduct any commercial activity with Anthropic.” The label, typically applied to companies linked to foreign adversaries, raised concerns about a potential blacklist.

But Anthropic CEO Dario Amodei said in a statement Thursday that the Pentagon’s letter only prohibits military contractors from using the company’s AI model Claude “as a direct part of contracts with the Department of War, not all use of Claude by customers who have such contracts.”

The dispute stems from Anthropic’s restrictions on Claude, the first AI system cleared for use on the military’s classified network. Critics feared the Pentagon’s move could significantly curb the company’s operations.

Amodei emphasized that the law governing supply chain risk limits the scope of the designation.

“Even for Department of War contractors, the supply chain risk designation doesn’t (and can’t) limit uses of Claude or business relationships with Anthropic if those are unrelated to their specific Department of War contracts,” he said.

Microsoft, one of Anthropic’s largest partners, agreed. A spokesperson told CNN, “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.”

Google and Amazon issued similar statements, confirming that Anthropic products would remain accessible for non-Defense Department work.

A senior Pentagon official confirmed the department had formally notified Anthropic leadership of the supply chain risk designation.

“From the very beginning, this has been about one fundamental principle: the military being able to use technology for all lawful purposes. The military will not allow a vendor to insert itself into the chain of command by restricting the lawful use of a critical capability and put our warfighters at risk,” the official said.

Amodei said Thursday that Anthropic plans to challenge the designation in court.

“We do not believe this action is legally sound, and we see no choice but to challenge it in court,” he said.

The conflict arose when the Pentagon requested a contract modification granting “all lawful uses” of Claude. Negotiations stalled over Anthropic’s two redlines: preventing AI from being used in autonomous weapons and for mass surveillance of U.S. citizens—restrictions the Pentagon said it could not accept.

Amodei said last week he could not comply “in good conscience.” President Donald Trump then directed all federal agencies to phase out Anthropic products within six months, and Hegseth subsequently labeled the company a supply chain risk.

Despite the public dispute, Amodei indicated that discussions with the Pentagon have continued in recent days.

“I would like to reiterate that we had been having productive conversations with the Department of War over the last several days, both about ways we could serve the Department that adhere to our two narrow exceptions, and ways for us to ensure a smooth transition if that is not possible,” he said.

Under Secretary of Defense Emil Michael countered on X, stating, “I want to end all speculation: there is no active @DeptofWar negotiation with @AnthropicAI.”

Amodei also apologized for a leaked internal memo shared with staff on Friday and published by The Information, in which he blamed part of the dispute on Anthropic not giving “dictator-style praise to Trump.”

“It was a difficult day for the company, and I apologize for the tone of the post,” he wrote. “It does not reflect my careful or considered views. It was also written six days ago, and is an out-of-date assessment of the current situation.”

Sam Altman, CEO of rival AI company OpenAI, has told the Pentagon publicly and privately that he does not believe Anthropic should be labeled a supply chain risk. OpenAI reached its own agreement last week to allow Pentagon use of its AI on classified systems while following the same red lines Anthropic outlined.

On Thursday, 30 former military and intelligence officials, along with tech policy leaders, sent a joint letter to Congress calling for investigation into what they described as a “dangerous precedent” set by the Pentagon’s action against Anthropic.

Tech trade groups in Washington have also warned the administration about potential harm from labeling a U.S. company a supply chain risk, according to Reuters.

Lawmakers weighed in as well. Republican Sen. Thom Tillis told Axios the public clash between the Pentagon and Anthropic “is sophomoric.” Democratic Sen. Kirsten Gillibrand said the designation is “shortsighted, self-destructive, and a gift to our adversaries.”