Anthropic's lawsuit against the Trump administration suffers setback: US appeals court upholds "supply chain risk" ruling.

New developments have emerged in the legal dispute between Anthropic and the Trump administration over artificial intelligence technology, but the standoff between the two sides is far from over.

On Friday, the U.S. Court of Appeals for the District of Columbia Circuit ruled 2-1 against Anthropic's objection to the Pentagon's designation of it as a national security risk to the supply chain, securing a key victory for the government.

However, a previous ruling by a California federal judge suspending the government's injunction remains in effect , leaving the overall direction of the dispute unresolved.

The root of the dispute lies in Anthropic's refusal to lift its contractual restrictions on the Claude model for use in lethal autonomous weapons and domestic surveillance, which led to a breakdown in negotiations and the Pentagon subsequently designated the company as a supply chain risk.

This court ruling serves as a warning to AI companies seeking to expand into government clients and puts Anthropic under greater pressure in its bid for government contracts.

In a statement, Anthropic expressed "polite disagreement" with the appeals court's ruling, noting that another federal court had ruled the similar determination made by the government in parallel unlawful, and that the company was "considering all options, including seeking further review."

The breakdown of negotiations was the trigger for the dispute.

The legal battle began with a failed business negotiation earlier this year.

In February of this year, Anthropic sought assurances from the government that Claude would not be used for mass surveillance of U.S. citizens or for the deployment of autonomous weapons, while the government insisted that Claude be used without any restrictions imposed on the company.

After negotiations stalled, the Pentagon notified Anthropic that it was designating the company and its products as a U.S. supply chain risk and demanded that all federal agencies withdraw any directives related to the company.

Such risk designations typically apply only to companies from countries the U.S. considers adversaries. Anthropic's inclusion on this list signifies a strong government response to the company's stance.

Anthropic subsequently filed lawsuits against the Pentagon in California and Washington, D.C., accusing the government of illegal retaliation against the company after negotiations failed. The Washington lawsuit focused on the legality of the assessment of supply chain security risks, while the California lawsuit targeted a broader ban on the use of technology in government contracts.

The courts in the two jurisdictions applied different legal standards.

The majority opinion of the Court of Appeals for the District of Columbia Circuit was written by Judge Karen LeCraft Henderson.

She believes that the Department of Defense's designation of Anthropic as a source of risk, based on a regulation with a broad definition of supply chain risk, is "well-founded" —even if the company had no malicious intent, it does not affect the validity of the determination.

However, the ruling made by a California federal judge in August of this year applied a different law—one that has a stricter definition of supply chain risk, covering only adversaries who may intentionally disrupt or maliciously infiltrate government systems.

The judge therefore ruled that the government's ban on the use of Anthropic technology was not based on sufficient grounds.

In her ruling, Henderson stated that the District of Columbia Court of Appeals "had no objection" to the California court's conclusion because Anthropic had no "malicious intent" in its dealings with the Department of Defense; however, she also pointed out that identifying supply chain risks under another regulation "does not require malicious intent."

The courts in the two jurisdictions operate under different legal frameworks, resulting in parallel but divergent judicial paths.

The clash between AI commercialization and national security claims

This dispute reflects the increasingly tense relationship between the commercial expansion of artificial intelligence companies and the government's security needs.

American AI developers are racing to launch state-of-the-art models and demonstrate the profitability of their technologies to investors, with government clients undoubtedly playing a crucial role in this business landscape.

Anthropic's inclusion on the supply chain risk list not only directly affects its ability to undertake government contracts, but also has a broader demonstration effect on how the entire industry should set usage restrictions in negotiations with governments regarding technology cooperation.

Currently, the California court's suspension order remains in effect, meaning that Anthropic's channels for cooperation with the government in some areas have not been completely closed.

However, the latest ruling from the District of Columbia Court of Appeals indicates that the government's security review of artificial intelligence technology has considerable legal support. Anthropic stated that it is considering seeking further review, and the final outcome of this dispute remains to be seen.

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