A federal appeals court in Washington, D.C., ruled 2-1 to uphold the Pentagon’s blacklisting of artificial intelligence firm Anthropic as a national security supply chain risk, preserving the company’s exclusion from military contracts following a bitter dispute over contract terms.
Federal Appeals Court Backs Pentagon Blacklisting in 2-1 Ruling
The U.S. Court of Appeals for the District of Columbia Circuit delivered a major setback to Anthropic on Friday, upholding the Defense Department’s designation of the AI company as a national security supply chain risk. Judge Gregory Katsas wrote the majority opinion, joined by Judge Neomi Rao, concluding that the Department of War adequately demonstrated that keeping Claude embedded in military information systems created a statutory national security risk.
Judge Karen LeCraft Henderson dissented from the panel’s decision. The majority and dissenting judges split sharply over how to interpret the statutory definition of a supply chain risk, with the court ruling that the label is not limited strictly to foreign adversaries or hostile nation-states.
An Anthropic spokesperson responded to the ruling by stating, We respectfully disagree with the court’s decision.
The company added, Another federal court has already held the government’s parallel designation unlawful. We remain confident in our position and are considering all options, including further review.
Contract Disputes and the Origins of the $200 Million Deal Breakdown
The bitter legal confrontation stems from an initial $200 million contract signed in July of last year, in which Anthropic agreed to prototype frontier artificial intelligence capabilities for U.S. national security. Tensions mounted after reports indicated Claude was deployed by the military during an operation to capture Venezuelan President Nicolás Maduro and his wife, Cilia Flores, in Caracas.
Following those deployments, Anthropic CEO Dario Amodei declared that the company would bar the federal government from using its technology for domestic surveillance or fully autonomous weapons systems. Amodei argued that such applications can undermine, rather than defend, democratic values.
Secretary of War Pete Hegseth rejected those restrictions, arguing that the department required unrestricted access to any lawful use of AI. Hegseth posted on X in late February that Anthropic’s stance represented a master class in arrogance and betrayal as well as a textbook case of how not to do business with the United States Government or the Pentagon.
President Donald Trump subsequently directed every federal agency via Truth Social to immediately cease using Anthropic’s technology.
Dueling Federal Courts and Competing Legal Classifications
Because the Pentagon grounded its blacklisting of Anthropic in two distinct legal designations, the conflict triggered separate courtroom battles across the country. While the D.C. Circuit upheld one designation, a federal district judge in San Francisco ruled last month that a parallel DOD designation was unlawful, finding that the government retaliated against Anthropic in violation of the First Amendment.
In the Northern District of California proceedings overseen by Judge Rita Lin, the court previously determined that blacklisting the firm violated free speech protections. However, the D.C. appeals court rejected Anthropic’s First Amendment claims, ruling instead that the government acted lawfully based on the company’s refusal to assent to essential contract terms.
Next Legal Steps and Industry Fallout for Anthropic
The D.C. Circuit panel temporarily stayed its ruling, leaving Anthropic room to request a panel rehearing, pursue an en banc review before all D.C. Circuit judges, or carry its case directly to the Supreme Court.
As the legal battle unfolded, the company faced mounting isolation within the defense sector. Anthropic was left out of a separate Pentagon announcement where seven major technology firms—including Google, OpenAI, Microsoft, and Amazon Web Services—secured agreements to deploy their technology onto classified military networks. Anthropic leadership was absent from a White House dinner honoring Chinese President Xi Jinping, an event attended by top executives from rival tech enterprises.