I'm sure this sort of unofficial blacklisting is fairly common, but it does seem very opposed to the idea of a free market. It definitely doesn't seem like Anthropic was trying to make some sort of point here, but it would be cool if all the AI companies had a ToS saying it can't be used for any sort of defense/police/military purposes

I am not even sure what free market is, aside from Economics textbooks and foreign policy positioning. Whatever it may be, I don't think we had it for quite some time.