We had seven projects in DARPA POSH and one in IDEA. DARPA did not fund a single one of them. I'm afraid it's because they think we will self exploit ourselves like always and develop that stuff "for free" anyways. 1/4
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Or is the issue that they don't need to ship it or modified versions, just use it in-house & ship the output?
Excluding certain types of applications or users is a violation of the open source definition. So I wouldn't (couldn't) call it open source anymore of course.
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You can make odious without excluding just by being incompatible with their business or deployment model. For example GPL works this way with game industry.
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In that case they'll pay for a special commercial license because they're unwilling to GPL their whole derived product.
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