A divided panel of federal appeals court judges in Washington, DC, ruled on Friday that the US Department of Defense acted within its authority when it designated AI developer Anthropic as a supply chain risk. The decision rejects Anthropic’s legal challenge and allows the ban on its Claude models to remain in place for military and federal government use.
In a majority opinion, the judges stated that the department had substantial justification for concluding that continuing to integrate Claude into its information systems posed a national security risk. “As Anthropic admits, the company encodes restrictions into Claude that prevent the model from performing tasks that Anthropic wishes to prevent,” the judges wrote.
This ruling represents a significant legal setback for the company. Earlier this year, the Pentagon invoked separate supply-chain laws to remove Anthropic’s AI models from federal systems. Defense Secretary Pete Hegseth characterized the company’s refusal to allow its technology for autonomous weapons or domestic surveillance as a serious threat to national security.
Anthropic’s legal strategy involved challenging the designations in two different jurisdictions. In March, a federal judge in San Francisco tossed out one of the supply-chain risk labels, a decision that was confirmed last month. However, the DC appeals court’s Friday ruling ensures the second designation remains enforceable indefinitely. Both legal battles are expected to face years of further appeals before reaching a final resolution.
The majority also dismissed Anthropic’s claims that its due process and free speech rights were violated. The court described the situation as a standard contract negotiation rather than a suppression of speech. “The Pentagon excluded Anthropic from its supply chain based on the company’s refusal to assent to a contract term that the Department deemed essential, not based on the company’s support for greater governmental regulation of AI technology,” the judges noted.
Anthropic has argued that the government exceeded the scope of the supply-chain law. Despite the ruling, the company maintains confidence in its position. Spokesperson Danielle Cohen stated that Anthropic is considering all available options, which could include appealing to a fuller panel of the DC Circuit Court of Appeals or petitioning the US Supreme Court.
The designation initially impacted Anthropic’s revenue, as clients expressed reluctance to do business with a company labeled a government pariah. While the company has not released specific financial updates tied to the ban, it has reported growing sales overall and is preparing for a potential initial public offering later this year.
Meanwhile, the Pentagon continues its efforts to replace Claude with alternative AI models from vendors such as SpaceX’s Grok, Google’s Gemini, and OpenAI’s GPT series. Some employees at Google and OpenAI have raised ethical objections to their companies striking deals with the military that Anthropic had refused, but those firms have proceeded, framing support for the US government as a priority.
The Friday decision was anticipated, following an April ruling by the same three-judge panel that declined to issue a temporary injunction against the designation. At that time, the court found Anthropic had not met the stringent requirements needed for an immediate reprieve.
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