Appeals court lets Pentagon label Anthropic a supply chain risk

Court upholds Pentagon's supply chain risk designation

The D.C. Circuit Court of Appeals ruled 2-1 on Friday that the Defense Department had lawful grounds to designate Anthropic a supply chain risk, allowing the Trump administration to blacklist the AI company from Pentagon contracts. The majority found that the department had "ample support" for its conclusion that continued integration of Claude into the department's information systems "presented a statutorily covered national-security risk," because Anthropic encodes restrictions into Claude that prevent the model from performing certain tasks. Anthropic has publicly stated it will not allow its products to be used for autonomous weapons or mass domestic surveillance. The decision was reported across multiple outlets, with the Washington Post characterizing the ruling as a determination that "the Pentagon acted lawfully when it targeted the artificial intelligence company using powers to address security risks in its supply chain."

Court's reasoning centers on Anthropic's own code restrictions

In its written ruling, the appellate panel pointed to Anthropic's own admissions as the basis for the supply chain risk finding. "As Anthropic admits, the company encodes restrictions into Claude that prevent the model from performing tasks that Anthropic wishes to prevent," the court wrote, according to coverage of the decision. The D.C. Circuit sided with the government over Anthropic's multi-pronged challenge to the label, with one judge dissenting. The dispute had previously moved through the lower courts before reaching the appellate level, and the appeals court's reasoning turned on the codified limits Anthropic places on how its models can be used.

Broad executive-branch authority to tag companies as security risks

Beyond the immediate effect on Anthropic, the ruling establishes wider authority for the executive branch to apply the supply chain risk label to both foreign-owned and U.S. companies. Anthropic had warned that the designation would carry "reputational stigma" and cost the company hundreds of millions of dollars in revenue, and the court's acceptance of those consequences signals a permissive standard for future designations. The decision provides the Defense Department and its contractors a federal appellate endorsement of its supply chain risk process as applied to AI vendors whose products contain embedded use restrictions.

Other developments

Separately, the New York Post also reported on the appellate ruling, framing it as the court declining to block the Defense Department's order that deems the AI startup a supply chain risk and bars the military and its contractors from using Anthropic's technology. Anthropic indicated it was weighing its options following the adverse ruling.