A federal appeals court has upheld the Pentagon’s blacklisting of artificial intelligence firm Anthropic as a national security supply chain risk. Circuit on Friday conflicts with a separate San Francisco district court ruling that found the government’s parallel actions unlawful.
The legal battle between the Trump administration and Anthropic stems from a $200 million contract dispute originating in July of last year. Under that initial deal, Anthropic agreed to prototype frontier AI capabilities that advance U.S. national security. Tensions mounted when the Pentagon demanded that Anthropic make its Claude AI models available for any lawful military use without restrictions. Anthropic refused to permit its technology to be deployed in fully autonomous weapons systems or for mass domestic surveillance, arguing that current AI models lack the reliability needed for autonomous lethal force and that domestic surveillance violates constitutional rights. The Wall Street Journal reported in February that Claude was used by the U.S. military during its operation.
Appellate Ruling and the D.C. Circuit Majority Decision
Writing for the 2-1 majority, U.S. Court of Appeals Judge Gregory Katsas concluded that the Defense Department had adequately demonstrated that keeping Claude embedded in its information systems presented a statutorily covered national security risk. Judge Neomi Rao joined the majority, while Judge Karen LeCraft Henderson dissented. Katsas and Rao were appointed by Donald Trump during his first term, whereas Henderson was appointed by former President George H.W. Bush.
Judge Gregory Katsas, a U.S. Court of Appeals Judge appointed by Donald Trump, wrote for the D.C. Circuit majority in the 2-1 decision upholding the Pentagon’s blacklisting of Anthropic as a national security supply chain risk.
The appeals court rejected Anthropic’s argument that the Pentagon had retaliated against the company for its views on AI safety and ethics. Instead, the majority held that the blacklisting was lawfully based on the company’s refusal to assent to contract terms that the Department deemed essential for military readiness. Siding with Hegseth’s argument that Anthropic’s safety restrictions could compromise military operations, the majority said, The Secretary raises the deeply sobering prospect of overly constrained AI models shutting down unexpectedly and thus causing important military operations to fail,
in an opinion by Judge Gregory Katsas.
Contrasting Rulings Across Federal Courts
The legal situation surrounding Anthropic involves two separate legal designations grounded in different statutory authorities, requiring separate litigation in different courts. While the D.C. Circuit upheld one designation, a federal district judge in San Francisco ruled last month that a parallel Defense Department designation was unlawful.
District Judge Rita Lin determined that Defense Secretary Pete Hegseth’s decision to designate Anthropic as a supply chain risk violated governing law, was arbitrary and capricious, and constituted unlawful retaliation for exercising First Amendment rights. Judge Lin also found that Anthropic was denied the procedural protections required under the Fifth Amendment.
U.S. District Judge Rita Lin
Lin’s ruling permanently suspended the government-wide ban and blocked federal agencies from enforcing Donald Trump’s order to stop using Anthropic’s tools, while overturning the designation of the company as a supply chain risk by Defense Secretary Pete Hegseth. Lin put a temporary pause on the government’s punitive measures in March, stating that the government’s actions looked like an attempt to cripple Anthropic
for exercising its first amendment rights. In her 59-page decision, Judge Rita Lin wrote, The empty invocation of national security is not a blank check to punish and retaliate against government critics.
Company Response and Next Legal Steps
Circuit decision.
“We respectfully disagree with the court’s decision. 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.”
Anthropic spokesperson
The ongoing legal conflict has impacted business relationships. Anthropic faces the D.C. Circuit ruling while planning an initial public offering, with the startup noting that the Pentagon’s designation has cost it billions of dollars in lost business and damaged its reputation ahead of the anticipated launch.
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