Appeals Court Upholds Pentagon Blacklisting of Anthropic

A federal appeals court in Washington, D.C., on Friday upheld the Pentagon's designation of Anthropic as a supply chain risk, dealing a blow to the AI company in its months-long legal fight with the Trump administration.

Circuit Judge Gregory Katsas and Circuit Judge Neomi Rao, in a 2-1 decision, rejected Anthropic's argument that the Department of Defense's ban on its Claude models was arbitrary, unauthorized and unconstitutional. Circuit Judge Karen LeCraft Henderson dissented.

"The Department had ample support for its conclusion that the continued integration of Claude into the Department's information systems, by the Department or its contractors, presented a statutorily covered national-security risk," Katsas wrote in the opinion for the court.

The ruling is the latest turn in a conflict that has pitted one of the country's leading AI developers against the U.S. defense establishment. In March, the DOD labeled Anthropic a supply chain risk — a designation that means the company purportedly threatened U.S. national security. The action came after negotiations about how the military could use its Claude AI models spiraled out of control, according to the source report.

The practical consequences are concrete. The designation prevents the U.S. military from using Anthropic's models and blocks defense contractors from using them in their work with the agency. For a company whose frontier models are widely deployed across enterprise and government customers, losing access to the defense market — and the contractors that serve it — cuts off a significant channel.

Anthropic sued the Trump administration in two venues, San Francisco and Washington, D.C., in an effort to reverse the blacklisting. The split was not procedural choice but a structural necessity: the DOD relied on two distinct designations to justify its supply chain risk action, which meant they had to be litigated in two separate courts.

That dual-track litigation has now produced a split result. A San Francisco federal judge ruled last month that one designation was illegal. On Friday, the D.C. appeals court upheld the second.

"We respectfully disagree with the court's decision," an Anthropic spokesperson told CNBC in a statement. "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."

The spokesperson's reference to "further review" points to the remaining legal avenues, including a potential petition to the full D.C. Circuit or the Supreme Court. The company's argument that a second court has already found the parallel designation unlawful gives it a factual record to press that appeal.

The case matters beyond Anthropic's own commercial fortunes. It tests how much discretion the Pentagon has to exclude AI vendors from defense supply chains on national-security grounds — a question with direct stakes for every frontier model developer seeking government work. A 2-1 appellate split, combined with a contrary ruling from a district court in another circuit, leaves the underlying legal standard unsettled.

For now, the blacklisting stands in full for the military and its contractors. Whether it survives further review will determine whether the DOD's dual-designation approach holds, or whether Anthropic's San Francisco win becomes the controlling precedent in the fight over its defense market access.