DC Circuit's 2-1 ruling leaves Pentagon contractors choosing between Claude and the department
Anthropic lost a 2-1 appeals ruling on the Pentagon's supply-chain-risk label, so the department's contractors still cannot use Claude. Civilian agencies can still buy from Anthropic after a California ruling the government did not appeal, so contractors serving both have to follow the stricter Pentagon rule.
The Investor · Invest desk
What happened
- Judges on the DC Circuit ruled 2-1 on Friday that the Pentagon lawfully labeled Anthropic a supply-chain risk, leaving its blacklisting from military contracts in force.
- Anthropic's February designation was the first time the list, previously aimed mainly at firms tied to hostile foreign states, had been used against a US company.
- A California federal court struck down a parallel designation last month, and because the government did not appeal, other federal agencies can still work with Anthropic.
Why it matters
- Who has to decide decision A contractor that sells to the Pentagon and uses Claude has to pick one, and the civilian-agency opening does nothing for the defense side of its revenue.
- What it sets up precedent Katsas located the national-security risk in Anthropic's ability to change its own model, so a US vendor that writes usage limits into a defense contract is within reach of the same statute.
- What it limits constraint Contractors cannot wait out the appeal, because the designation has been in force since the court refused to suspend it in April, and only rehearing, en banc or Supreme Court review can end it.
- What doesn't add up contradiction Howley's report that US operations in Iran and Venezuela used Anthropic's technology cuts against the department's position that keeping Claude in its systems is a national-security risk.
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Both results can stand at once because the Pentagon grounded its blacklisting in two separate legal designations, and each had to be litigated in a different court [7]. Anthropic filed on both tracks in March, suing several agencies including the Defense Department in California and the Pentagon alone at the DC Circuit [6]. Of the two designations, one has now been held unlawful and one upheld [19].
The February order told all federal agencies and military contractors to stop doing business with Anthropic [4]. What survives covers the Pentagon and the companies that sell to it [1]. Civilian agencies can buy from Anthropic under the California ruling, which the government did not appeal [9]. Contractors cannot, since the designation effectively blocks every Pentagon contractor and supplier from using the company's technology [12]. Dan Howley, Yahoo Finance's technology editor, described the contractor's position: a vendor that works with both the Defense Department and Anthropic has to drop Anthropic to keep the government contract [13].
How long that lasts depends on further review. The panel stayed its ruling temporarily so Anthropic can ask for a panel rehearing, en banc review by all the circuit's judges, or a Supreme Court hearing [10]. The designation has not waited on any of it. In April the same court refused to suspend the sanctions pending a merits decision [16].
Judge Gregory Katsas, writing for the majority, found that keeping Claude in the department's information systems created a national-security risk covered by statute [14]. He wrote that the department had reasonable grounds to worry Anthropic could modify Claude so it could no longer perform functions the department considered contractually permitted and essential [15]. Behind that finding was a $200 million contract dispute over classified deployment, in which Anthropic sought written guarantees against fully autonomous weapons and mass surveillance of Americans [3]. On that reasoning, a vendor's own usage limits are the risk. The list had previously been applied mainly to firms linked to hostile foreign states [4].
Anthropic could petition for en banc review with Judge Karen LeCraft Henderson's dissent to point to [14]. The Supreme Court is the other route [10]. A settlement would be faster, though the department's tone does not suggest one: Emil Michael, its chief technology officer, wrote on social media that the hammer of justice had shattered Anthropic's arguments [17]. I'd expect defense contractors to keep Claude out of Pentagon-facing work until the full court acts on a petition, since guessing wrong costs them the contract [13].
Anthropic made the opposite case. "We respectfully disagree with the court's decision," a spokesperson said. "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." [11] An en banc grant, or Anthropic joining the Pentagon's classified-network deals, would show that contractor caution was overdone [18].
The Pentagon has already signed with others. Seven major tech firms, including Google, OpenAI, Microsoft and Amazon Web Services, struck deals to put their technology on its classified networks, and Anthropic was left out of the announcement [18]. Howley added a complication, saying US operations in Iran and Venezuela used Anthropic's technology and may still be using it [20]. The ruling keeps Claude barred inside the Pentagon [5]. On Anthropic's commercial base, Howley said "they still have oodles and oodles of customers outside of them," much of it in coding and enterprise work [21].
What to watch
- Whether Anthropic petitions for en banc review and whether the full DC Circuit takes the case, with Judge Henderson's dissent on the record.
- Whether the Pentagon brings Anthropic into the classified-network deals it signed with seven other tech firms.
- Whether Anthropic's public S-1, reportedly timed for a November IPO, puts a figure on revenue from defense contractors.
Information, not investment advice. This story is general information about companies and markets, drawn from cited reporting. It is not a recommendation to buy, sell or hold any security; check the cited sources before acting.
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- [1]
The US Court of Appeals for the DC Circuit ruled 2-1 against Anthropic on Friday, upholding the Pentagon's designation of the company as a national security supply chain risk and leaving its blacklisting from military contracts in force.
- [2]
The dispute began after Anthropic refused a Defense Department demand that its AI be available for "all lawful purposes"; Anthropic restricts use for fully autonomous weapons and mass surveillance of US citizens.
- [3]
The conflict grew out of a $200 million contract dispute over how the Pentagon could deploy Claude on classified systems; Anthropic sought written guarantees that Claude would not be used in fully autonomous weapons or mass domestic surveillance.
- [4]
The Trump administration designated Anthropic a supply chain risk in February and ordered all federal agencies and military contractors to halt business with it; it was the first time the list, previously applied mainly to firms linked to hostile foreign states, was used against a US company.
- [5]
Under the ruling, Anthropic's Claude remains barred from use inside the Pentagon.
- [6]
Anthropic filed two lawsuits in March, one in federal court in California naming multiple agencies including the Defense Department, and one at the DC appeals court naming only the Pentagon.
- [7]
The Pentagon grounded its blacklisting in two separate legal designations, each of which required litigation in a different court.
- [8]
A San Francisco federal judge ruled last month that a parallel DOD designation was unlawful, finding the government had retaliated against Anthropic in violation of the First Amendment.
- [9]
Other federal agencies outside the Defense Department are still permitted to work with Anthropic under last month's California ruling, which the US government did not appeal.
- [10]
The appellate panel stayed its ruling temporarily, preserving Anthropic's ability to request a panel rehearing, pursue en banc review by all DC Circuit judges, or go to the Supreme Court.
- [11]
"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."
- [12]
Defense Secretary Pete Hegseth's designation effectively blocked every Pentagon contractor and supplier from using Anthropic's technology.
- [13]
Dan Howley said that under the designation a vendor that works with both the DoD and Anthropic is no longer allowed to work with Anthropic if it wants to keep its government contract.
- [14]
Judge Gregory Katsas wrote for the majority that the DOD had adequately demonstrated that keeping Claude embedded in its information systems created a risk to national security covered by statute; Judge Neomi Rao joined; Judge Karen LeCraft Henderson dissented. Katsas and Rao were appointed by Donald Trump, Henderson by George H.W. Bush.
- [15]
Katsas wrote that the DOD had reasonable grounds to worry that Anthropic could modify Claude in ways that would render it incapable of performing functions the department viewed as both contractually permitted and essential to its mission.
- [16]
In April the DC appeals court denied Anthropic's request for an injunction, leaving the supply chain risk sanctions in place until a ruling on the merits.
- [17]
The Defense Department welcomed the decision; Emil Michael, its chief technology officer, wrote on social media that the hammer of justice had shattered Anthropic's arguments.
- [18]
Anthropic was excluded from a Pentagon announcement in which seven major tech firms, including Google, OpenAI, Microsoft and Amazon Web Services, struck deals to bring their technology onto the department's classified networks.
- [19]
Of the two legal designations the Pentagon used against Anthropic, one has been upheld (DC Circuit) and one held unlawful (California).
- [20]
Howley said US operations in Iran and the operation in Venezuela used Anthropic's technology and that they are still potentially using it.
- [21]
"they still have oodles and oodles of customers outside of them" - Howley, adding that a lot of it has to do with coding and enterprise use of Anthropic's co-work platform.
- [22]
Howley said the newest reports put Anthropic's IPO in November and that the S-1 has not yet been filed publicly.
Sources
3 independent publishers whose own reporting we read for this story.
- en.sedaily.comU.S. Appeals Court Upholds Pentagon Blacklisting of Anthropic
1 article · September 26, 2026
- finance.yahoo.comUS appeals court upholds Pentagon's designation of Anthropic as a 'supply-chain risk'
1 article · September 25, 2026
- qz.comFederal appeals court upholds Pentagon's Anthropic blacklist
1 article · September 25, 2026
Topics and entities
Topics
- National-Security Supply-Chain Risk Designation
- AI Defense Procurement
- AI acceptable-use policy