Appeals Court Upholds Pentagon's Designation of Anthropic as Supply Chain Risk

A U.S. federal appeals court in Washington D.C. has rejected an AI company's legal bid to overturn a supply chain risk designation placed on it by the Department of Defense. The ruling, issued Friday, permits the Pentagon to continue restricting the use of Anthropic's Claude AI models within military and federal systems.

The judges stated in a majority opinion that the "department had ample support for its conclusion that the continued integration of Claude into the department’s information systems… presented a national security risk." Anthropic acknowledges encoding restrictions into Claude that prevent certain tasks. The company is now considering further options, including appeals to a broader court panel or the Supreme Court.

Earlier this year, the Pentagon sanctioned Anthropic under separate supply chain laws, mandating the removal of its Claude AI models from government systems. Anthropic executives had previously stated the company would not permit its models to support autonomous weapons or domestic surveillance, a stance Secretary of Defense Pete Hegseth deemed a significant national security risk.

Following the initial designations, Anthropic reported losing revenue due to customer concerns about doing business with the company. While specific financial impacts have not been disclosed, Anthropic has reported growing sales in recent months and is reportedly preparing for a potential initial public offering. The Pentagon has not provided updates on its progress in replacing Claude with alternative AI models.