Anthropic lost a legal battle to overturn a supply-chain risk designation imposed by the US Department of Defense, as a federal appeals court in Washington, DC, ruled on September 25, 2026. The court declined to challenge the Trump administration's decision, stating, "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."
Anthropic's spokesperson, Danielle Cohen, stated that the company remains confident in its position and is considering options, including an appeal to a broader panel of the DC Circuit Court of Appeals or the US Supreme Court. Earlier this year, the Pentagon sanctioned Anthropic under two separate supply-chain laws, requiring the removal of the company’s Claude AI models from military and federal government use by the end of the month. Anthropic executives have asserted that they would not permit the government to utilize their AI models for autonomous weapons or domestic surveillance, a stance that Secretary of Defense Pete Hegseth labeled a significant national security risk.
The legal challenges to the designations have been ongoing, with a federal judge in San Francisco previously dismissing one of the supply-chain risk labels in March and reaffirming that decision last month. However, the recent ruling means that the other designation will remain in effect indefinitely, allowing the Pentagon to continue blocking Anthropic's involvement. Both cases are expected to undergo years of appeals before a final resolution.
Following the designations, Anthropic reported a loss of revenue due to customer concerns about associating with a government-designated pariah. While the company has not provided specific updates on the financial impact, it has generally reported increasing sales and is preparing for a potential initial public offering later this year.
The Pentagon has not disclosed detailed information regarding its efforts to replace Claude with alternatives such as SpaceX’s Grok, Google’s Gemini, or OpenAI’s GPT models. Some employees at Google and OpenAI have expressed ethical concerns regarding their companies' agreements with the US military, which Anthropic has rejected. Nevertheless, these companies have maintained that supporting the US government is essential.
The appeals court's decision was anticipated, as the same panel had previously declined to temporarily block the supply-chain-risk designation in April, citing Anthropic's failure to meet the necessary requirements for an immediate reprieve. During a hearing, the judges challenged both parties on their arguments and appeared divided on the issue. The final ruling was issued with a 2-1 majority.
The majority opinion dismissed Anthropic’s claims of due process and free speech violations, asserting that the government adhered to proper procedures and that the dispute was a standard aspect of contract negotiations. The judges noted that the Pentagon excluded Anthropic from its supply chain due to the company's refusal to agree to a contract term deemed essential by the Department, rather than its stance on increased governmental regulation of AI technology. For the time being, the Pentagon and much of the Trump administration will continue to avoid Claude ahead of Anthropic’s anticipated IPO.