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Appeals court upholds Pentagon’s supply-chain-risk designation of Anthropic, 2-1

A D.C. Circuit panel said the Defense Department reasonably barred Anthropic’s Claude from department and contractor systems; Anthropic said it is weighing further review.

Motion Media News Staff

Sep 25, 2026

2 minutes

The stone facade of a large federal courthouse building in Washington, D.C., under a clear sky.

Photo: ajay_suresh, CC BY 4.0 (https://creativecommons.org/licenses/by/4.0), via Wikimedia Commons (source)

A federal appeals court on Friday, Sept. 25, upheld the Pentagon's designation of Anthropic as a national security supply-chain risk, a ruling that lets the Defense Department keep the company's AI products out of its own systems and those of its contractors, Reuters reported via Defense News.

The 2-1 decision by a panel of the U.S. Court of Appeals for the D.C. Circuit came in Anthropic's challenge to the designation, which Defense Secretary Pete Hegseth imposed in March after the company refused to drop restrictions on using its models for autonomous weapons or mass domestic surveillance. According to Reuters, Anthropic says the label has cost it billions of dollars in business.

Judge Gregory Katsas wrote the majority opinion, joined by Judge Neomi Rao. "The Department had ample support for its conclusion" that keeping Claude in department systems, whether used by staff or contractors, posed a national security risk covered by the statute, Katsas wrote, as quoted by Breaking Defense. He noted that Anthropic's built-in restrictions had "on more than one occasion" stopped Claude from doing tasks government users requested. The majority also turned aside Anthropic's argument that the Pentagon was punishing the company for its AI safety positions, Reuters reported.

Judge Karen LeCraft Henderson dissented. The Federal Acquisition Supply Chain Security Act of 2018 was meant to guard against sabotage by hostile foreign powers, she wrote, not a U.S. company that openly builds safety limits into its products. "I cannot agree that this is the scenario the Congress had in mind," she wrote.

Both sides respond

Anthropic said it "respectfully" disagreed. "Another federal court has already held the government's parallel designation unlawful," the company said, adding that it is "considering all options, including further review."

Defense Undersecretary Emil Michael wrote on X that the ruling showed Anthropic is "a supply-chain risk to the defense industrial base," according to Defense One.

The ruling covers only the Defense Department's action. In August, a federal district judge in San Francisco, Rita Lin, struck down a parallel designation made under a different law and blocked the administration's government-wide ban on Anthropic, finding unlawful retaliation, according to Reuters and Breaking Defense.

What's next

Anthropic could ask the full D.C. Circuit or the Supreme Court to hear the case, though both are discretionary, Charlie Bullock, a senior research fellow at the Institute for Law & AI, told Defense One. Defense One reported that Anthropic plans an initial public offering in November.