A US federal appeals court has upheld the Pentagon’s decision to blacklist Anthropic from its military supply chain, ruling on Friday that the Trump administration had acted lawfully when it designated the AI company a national security risk.

The US Court of Appeals for the District of Columbia Circuit rejected Anthropic’s arguments that the designation violated its First Amendment rights and lacked a sufficient national security basis. The 2-1 ruling means Anthropic remains barred from working with the Pentagon, although a separate California court ruling remains in effect.

The Washington court said the Pentagon had “ample support” for its conclusion that Anthropic’s technology could create risks for military operations. The judges said Anthropic could alter how its Claude AI model responded to users, potentially restricting its use in ways the Pentagon could not control.

The dispute followed negotiations over a $200 million Pentagon contract for AI technology on classified systems. Anthropic had refused to permit Claude to be used for fully autonomous lethal weapons or mass surveillance of US citizens, while the Pentagon sought permission to use the technology for “all lawful purposes”.

The Pentagon subsequently designated Anthropic a “supply chain risk” in March, preventing defence contractors and suppliers from doing business with the company. Reuters reported that the designation was an unusual use of the authority against a US company, which had previously been applied to companies considered national security risks linked to foreign adversaries.

Anthropic has argued that the designation has cost it billions of dollars in lost business and damaged its reputation ahead of a potential initial public offering. An Anthropic spokesperson said the company “respectfully disagree[s]” with the ruling and is considering further legal action, including asking the full appeals court to review the decision.

The ruling conflicts with a separate case in California, where US District Judge Rita Lin found last month that the administration had unlawfully retaliated against Anthropic for its views on AI safety. That case involved a different legal authority, and the California ruling was not overturned by Friday’s decision.

Judge Karen LeCraft Henderson dissented from the Washington ruling, arguing that the government had interpreted the law governing supply chain risks too broadly. “I cannot agree that this is the scenario the Congress had in mind,” she wrote in her dissent.

The Pentagon has not publicly indicated whether it will change its position following the ruling, while Anthropic can seek further review by the full appeals court or appeal to the Supreme Court.

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