WASHINGTON, D.C. – The strength and effectiveness of the United States military is due in no small part to its ability to leverage complex logistics with the support of private enterprise, including from small technology businesses like the members of ACT | The App Association (ACT). However, the uncertainty and confusion created by Secretary Hegseth’s designation of Anthropic’s artificial intelligence (AI) models as a “supply chain risk” and the manner in which it was declared, has created a heavy burden on the small business developers ACT represents, both within the defense supply chain and in the broader digital economy.
“Innovation and investment in technological advancement abhor uncertainty,” said Morgan Reed, president of ACT | The App Association. “The Department of War’s action to designate Anthropic as a supply chain risk was wrong, and the District Court needs to stop it. It wasn’t just unlawful; it provided no evidence that the Secretary considered how contractors, suppliers, or business partners of the U.S. military should eliminate usage of Anthropic’s Claude products. What does ‘conduct[ing] any commercial activity’ even mean? It’s that kind of basic information that is completely lacking so no business can effectively estimate their risk exposure.”
ACT put forth three arguments for the Court to grant the injunction:
- The important information exchange between regulators and the public typical of major policy changes did not occur here, leaving many questions unanswered;
- The significant new uncertainty and confusion the Secretary’s designation has introduced among ACT members and similarly situated small businesses who contract with the Department of War; and
- The far-reaching negative impacts this designation could have on the digital ecosystem go beyond direct government contractors.
ACT concurred with the arguments made in Anthropic’s complaint and by others that the designation is also unlawful for its violation of the First Amendment.
For startups and small businesses specializing in logistics services, providing such services in support of America’s defense industrial base requires clarity and predictability with regard to the requirements that will apply to any given business arrangement.
Based on discussions with members, ACT offered a number of common scenarios to illustrate to the Court the practical implications of the nebulous designation:
- A two-person startup selling logistics software to a Department of War prime contractor used Claude Code to write their entire testing software; nothing in the final product they ship identifies the use of an AI tool, as it is functionally indistinguishable from hand-written code.
- A defense contractor’s developer who pulls in more than 800 open-source dependencies has no way to know which of those packages were refactored, debugged, or documented using Claude Code by their maintainers.
- A mid-tier supplier to a defense prime contractor uses a software-as-a-service (SaaS) vendor’s project management tool, and that SaaS vendor’s engineering team rebuilt their interface using Claude Code last quarter. That supplier has no knowledge, and no contractual visibility into, of how their vendor’s software was built. No tool exists to find out, much less to enable some sort of “remove Claude” option once software has shipped.
“The United States must avoid this kind of unforced error in the competition with leading powers in AI and instead stay focused on providing a comprehensive federal framework that supports innovation while protecting consumers,” said Reed.
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About ACT | The App Association:
ACT is a global trade association for small and medium-sized technology companies. Our members are entrepreneurs, innovators, and independent developers within the global app ecosystem that engage with verticals across every industry. We work with our members to promote a policy environment that rewards and inspires innovation while providing resources that help small businesses raise capital, create jobs, and continue to build incredible technology.