TL;DR: Sealed court documents made public in late July 2026 revealed Anthropic's Project Panama: a covert program to buy and physically destroy up to 2 million books -- spine-cut, scanned by industrial equipment, paper recycled -- to build a proprietary training dataset for Claude. A June 2025 ruling found the destruction of lawfully purchased books to be fair use. But on August 21, 2026, more than a dozen civil society organizations asked the FTC to investigate under a different theory: Section 5 unfair methods of competition, arguing that only the wealthiest AI incumbents can afford to destroy the world's book supply, locking out smaller competitors. No FTC investigation has been opened. What this means for compliance teams: training data provenance is now a vendor risk category.
The internal memo used a soft codename. That detail, buried in unsealed court documents from Bartz v. Anthropic, surfaced in late July 2026. Anthropic called the program "Project Panama" -- "because we don't want it to be known that we are working on this."
The program itself was less subtle. Beginning in early 2024, Anthropic began purchasing books in bulk -- tens of thousands at a time from Better World Books and UK-based World of Books -- then shipping them to vendors equipped with hydraulic machines to cut off their spines and industrial scanners to digitize the pages. The paper was recycled. The text remained in Anthropic's proprietary training dataset, used to build Claude.
The scale was deliberate. Project Panama's stated goal, per the internal planning document, was to "destructively scan all the books in the world." The realistic target was between 500,000 and 2 million volumes over six months.
What the courts decided -- and what they didn't
Anthropic's book destruction became public through litigation, not disclosure. Authors Andrea Bartz, Charles Graeber, and Kirk Wallace Johnson led a 2024 class action alleging that Anthropic had used pirated books from shadow libraries like LibGen and the Pirate Library Mirror. That lawsuit produced a $1.5 billion settlement approved on July 20, 2026, covering approximately 482,000 eligible works.
Project Panama, though, involved legally purchased books. And on that narrower question, Judge William Alsup ruled in June 2025 that destroying and digitizing books that Anthropic had lawfully bought constituted fair use. You bought it, you can transform it.
That ruling closed one legal door and left another open. The civil society groups who sent their letter to the FTC on August 21, 2026, are not arguing copyright law. They are arguing competition law.
The antitrust theory
The FTC letter, signed by more than a dozen organizations including the Demand Progress Education Fund, the Consumer Federation of America, and the Institute for Local Self-Reliance, asks the agency to investigate under Section 5 of the FTC Act -- the "unfair methods of competition" provision, separate from the consumer protection authority the FTC has used in most AI enforcement actions to date.
The theory is structural. When a dominant incumbent AI company spends millions to acquire and physically destroy books -- including potentially the last surviving copies of rare editions -- it removes those works from the market entirely. A competitor that arrives five years later cannot buy what no longer exists.
"The secretive and reckless way that major AI companies like Anthropic and Amazon are acting shows that there is real smoke here the FTC needs to investigate," said Kate Oh, special adviser to the Demand Progress Education Fund.
The groups argue this creates what they call an "insurmountable systemic moat." The training data advantage is not just that Anthropic has the data -- it is that no one else can get it.
The letter also points to Amazon, which has engaged in similar book destruction programs. The civil society groups are not targeting a single company -- they are asking the FTC to look at an industry practice.
What this means for enterprise AI buyers
The $1.5 billion Bartz settlement already established that training data has a price tag. Project Panama and the FTC probe request add a second dimension: training data has a competitive structure problem too, and that structure problem could become a regulatory one.
Three practical implications for compliance teams.
Training data provenance belongs in your vendor questionnaire. Most enterprise AI vendor assessments ask whether the vendor trains on customer data, whether training data is licensed, and whether the vendor carries cyber liability insurance. They do not ask whether the vendor has acquired training data through physical book destruction programs. That gap needs to close. Add it now, before your next contract renewal.
The question is not whether your vendor violated fair use -- Judge Alsup answered that. The question is what competitive, regulatory, or reputational exposure your organization inherits by relying on a vendor whose training dataset was built through a program the company felt required a secret codename.
Indemnification clauses written for copyright claims may not cover antitrust claims. The standard AI vendor indemnification clause is built around copyright -- if someone sues you because your vendor's model reproduced their copyrighted text, the vendor covers you. That structure does not cover antitrust exposure. If the FTC opens a formal investigation of Anthropic's training data acquisition practices and issues civil investigative demands, your vendor's legal exposure is antitrust-shaped, not copyright-shaped. Check your contract language. If the indemnification is limited to intellectual property claims and does not extend to regulatory actions against the vendor, that is a gap to negotiate.
Regulatory uncertainty during a live FTC investigation changes your vendor risk calculus. No investigation has been opened. The FTC has not responded publicly to the August 21 letter. But if the agency does open an inquiry, the practical effects are real: distraction from Anthropic's leadership team, possible civil investigative demands, public disclosure obligations, and potential remedies that could affect how the company is allowed to acquire training data in the future. Enterprise buyers who depend heavily on Claude should model what a 6-to-12-month Anthropic compliance distraction looks like for their own AI roadmaps.
Why the secrecy matters more than the legality
The Project Panama planning document's request for secrecy is the most significant detail in this story for compliance purposes, and not because of what it implies about legality.
Anthropic's legal team presumably knew that buying and destroying lawfully purchased books was defensible under fair use. The June 2025 ruling proved them right on that question. The secrecy was not about avoiding a legal verdict -- it was about avoiding public reaction before the dataset was built.
For enterprise governance purposes, that distinction matters. A vendor whose training data programs are designed to avoid public scrutiny is a vendor whose risk disclosures cannot be taken at face value. The standard AI vendor questionnaire response -- "we use properly licensed data" -- is technically compatible with a program that physically destroys library books and instructs employees not to use the program's real name.
The gap between legal compliance and transparent operation is where enterprise vendor risk actually lives.
A five-item training data checklist for vendor assessments
Add these questions to your AI vendor due diligence questionnaire before the next contract signature or renewal:
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Physical acquisition programs: Has your company purchased physical books, documents, or other physical media in bulk for digitization as training data? If yes, at what scale, through which vendors, and is that program ongoing?
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Destruction practices: For any physical materials acquired for training data, what was done with the physical items after digitization? Are any categories of materials no longer obtainable because of your acquisition and destruction practices?
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Regulatory engagement: Has your company received any civil investigative demands, information requests, or informal inquiries from the FTC, DOJ, or any competition authority related to training data acquisition? If yes, describe.
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Indemnification scope: Does your standard enterprise contract's indemnification clause cover antitrust or unfair competition claims arising from your training data acquisition practices, or is indemnification limited to intellectual property claims?
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Program secrecy: Were any training data acquisition programs operated under a soft codename or otherwise kept confidential from the public, external stakeholders, or your own commercial customers? What programs no longer meet that description, and what changed?
Vendors who cannot answer these questions are not automatically in violation of anything. But their silence shifts the risk-assessment burden back to you.
Reading this in context
Project Panama is not an isolated incident. It is the most specific documented example of a broader pattern: dominant AI companies acquiring data at a scale and through methods that competitors cannot match, often before disclosure requirements existed or while regulatory attention was focused elsewhere.
The $1.5 billion Bartz settlement covers one dimension of that pattern -- the pirated digital libraries. The FTC probe request covers a second dimension -- the physical destruction of purchased books. A third dimension -- the scraping of web content under disputed terms of service -- is the subject of ongoing litigation across the industry.
Enterprise compliance teams do not need to resolve any of these legal disputes to manage their vendor risk. They need to understand that the foundation model they are buying access to was built through practices that are still being tested in court and in regulatory proceedings, and to ensure their contracts reflect that uncertainty rather than assume it away.
For a broader framework on assessing AI vendors before these issues arise, the AI vendor due diligence checklist is the starting point. For the regulatory landscape the FTC is operating in, the FTC AI enforcement actions tracker for 2026 covers what actions have actually been taken and what the agency's enforcement posture looks like right now.
Related Reading
- Anthropic's $1.5B Copyright Settlement: Training Data Has a Price Now
- AI Vendor Due Diligence: 30-Minute Checklist for Small Teams
- FTC AI Enforcement Actions 2026: Real Cases, Real Risks
- AI Scraping Hypocrisy: Training Data Vendor Risk
- Does Your AI Vendor Train on Your Data? A Policy Comparison
Sources: Euronews: Project Panama -- How Anthropic secretly destroyed millions of books (Aug 5, 2026), Axios: FTC urged to investigate AI firms for destroying books (Aug 21, 2026), Common Dreams: Advocates Demand Federal Probe of Book-Burning by AI Giants (Aug 24, 2026), MLex: AI industry book destruction merits US FTC antitrust probe, civil society groups say, IBTimes UK: Inside Project Panama, Anthropic's Secret Effort To Scan and Shred the World's Books
