US Appeals Court Upholds Pentagon’s Supply Chain Risk Label on Anthropic
A US appeals court ruled 2-1 that the Pentagon lawfully labelled Anthropic a supply chain risk. Anthropic, however, disagrees and is considering its options, following a parallel victory in August.
Background
September 25, 2026 - 4:24 pm
Credit: DoD photo by Master Sgt. Ken Hammond, U.S. Air Force.
The DC Circuit Court of Appeals denied Anthropic’s petitions to overturn the Pentagon's designation in a 2-1 ruling on Friday. Circuit Judge Gregory Katsas authored the opinion, joined by Circuit Judge Neomi Rao. Circuit Judge Karen LeCraft Henderson dissented.
What the Court Decided
The Department of Defense acted under a 2018 supply chain security law, the opinion states. Anthropic had refused to relax contract terms regarding its Claude models, which barred their use for lethal autonomous warfare or domestic surveillance.
Anthropic argued that the exclusion was arbitrary, against the law, and unconstitutional. The court rejected all these arguments.
“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.
The court noted that Anthropic built restrictions into Claude that had prevented it from performing tasks government users requested. A dispute also arose over Claude’s use in an ongoing overseas military operation, according to the opinion.
On free speech grounds, the court found that the Pentagon acted over a contract term it deemed essential. Anthropic had refused to accept it. The Pentagon had not acted over the company’s support for more government regulation of AI, the judges wrote.
“But in our Republic, it is the President and the Secretary of War who must determine how best to balance the competing risks,” the majority concluded.
The Dissent
Henderson disagreed with the majority’s interpretation of the law. She wrote that the law covers a supplier that could “sabotage,” “extract data,” or “otherwise manipulate” a product. Anthropic read “manipulate” as meaning deliberate, deceptive acts. The majority read it more broadly.
Henderson argued that Congress passed the law after warnings of hostile states and bad actors gaining access to federal systems through suppliers. She wrote that this history does not cover a contractor’s “honest and upfront enforcement of restrictions” on government use of its product.
Previous Legal Actions
The Pentagon labelled Anthropic a supply chain risk in March, and Anthropic sued the government days later. The case ran in two courts due to two separate designations, CNBC reported.
In August, a federal judge in San Francisco struck down one of the designations. Friday’s ruling leaves the second one intact.
“Another federal court has already held the government’s parallel designation unlawful,” an Anthropic spokesperson said.