A federal appeals court in Washington, D.C., has upheld the Pentagon's blacklisting of Anthropic, delivering a major setback to the AI company in its months-long legal battle with the Trump administration.
The U.S. Court of Appeals for the D.C. Circuit ruled 2-1 on Friday that the Defense Department acted within its authority when it designated Anthropic a "supply chain risk" in March, a move that bars the U.S. military from using the company's Claude models and blocks defense contractors from using them on Pentagon work. Judge Gregory Katsas wrote the majority opinion, joined by Judge Neomi Rao, with Judge Karen LeCraft Henderson dissenting.
"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, according to CNBC.
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A Split Across Two Courts
The ruling creates a striking split in Anthropic's litigation strategy. The company sued the Trump administration in two courts in March, arguing the blacklisting was arbitrary, unauthorized and unconstitutional. Because the Defense Department relied on two distinct legal designations, the cases were litigated separately.
Last month, a federal judge in San Francisco ruled that one of the two designations was illegal, finding it amounted to retaliation. On Friday, the D.C. Circuit upheld the second designation, leaving Anthropic with a mixed record and an uncertain path forward.
"We respectfully disagree with the court's decision," an Anthropic spokesperson told CNBC. "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 appellate panel said it would delay the decision from taking immediate effect, giving Anthropic time to seek a rehearing before the same panel, a rehearing before the full D.C. Circuit, or review from the Supreme Court.
How the Dispute Began
Before the public clash, Anthropic was an early AI partner across U.S. agencies, including the Defense Department. The company signed a $200 million contract with the Pentagon in July 2025, but negotiations over deploying Claude on the military's GenAI.mil platform collapsed that September.
According to CNBC, the Pentagon wanted unfettered access to Claude across all lawful purposes, while Anthropic sought assurances its technology would not be used for fully autonomous weapons or domestic mass surveillance. The talks failed, and Defense Secretary Pete Hegseth accused Anthropic of attempting "to seize veto power over the operational decisions of the United States military."
Katsas wrote that Hegseth raised "deeply sobering" concerns that overly constrained AI models could shut down unexpectedly or be subject to manipulation, and said decision-making authority ultimately rests with the president and the defense secretary.
"In our Republic, it is the President and the Secretary of War who must determine how best to balance the competing risks," Katsas wrote, adding that the secretary "did not transgress any limits on his authority under the Supply Chain Security Act or the Constitution."
A Fraught Relationship With the White House
The legal fight has played out against an increasingly hostile backdrop between Anthropic and the administration. President Donald Trump has repeatedly criticized CEO Dario Amodei on social media, particularly after Amodei called for an industry-wide slowdown in AI development.
"The Trump Administration has stopped AI 'people' from doing bad, or potentially bad, 'things,' like Dario (Anthropic!), who is now pretending to be a 'perfect little angel' — and we will continue to do so!" Trump wrote on Truth Social on Monday.
Amodei was also notably absent from the White House state dinner for Chinese President Xi Jinping on Thursday, while rivals including OpenAI's Sam Altman attended.
What Comes Next
Anthropic now faces a choice between petitioning the same panel, asking the entire D.C. Circuit to rehear the case, or taking the fight to the Supreme Court. Meanwhile, the conflicting rulings from San Francisco and Washington set up a potential longer-term legal question about the limits of executive power over AI companies.
The stakes extend well beyond one company. The case has become a test of whether the government can use procurement and supply chain authorities to punish AI firms for their public positions — and whether AI labs can set usage limits on military customers without losing government business entirely.
The outcome will shape how every frontier AI lab negotiates with national security agencies, and how much leverage the Pentagon has in those negotiations going forward.
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