A US federal appeals court has ruled that the Pentagon can blacklist artificial intelligence company Anthropic, upholding its designation as a national security supply chain risk.

The 2-1 decision by the US Court of Appeals for the District of Columbia Circuit is a setback for Anthropic, which challenged the Pentagon’s decision to exclude its Claude AI from military contracts.

The Pentagon designated Anthropic a supply chain risk after the company refused to allow Claude to be used for all lawful military purposes.

Anthropic had maintained restrictions on the use of its technology for lethal autonomous weapons and mass surveillance of Americans.

The appeals court rejected Anthropic’s arguments that the Pentagon lacked legal authority to impose the restriction and that the action violated its constitutional rights.

The court’s majority said the Pentagon had sufficient grounds to conclude that continued use of Claude in its information systems could create a national security risk.

One judge dissented, arguing that the Pentagon had not shown that Anthropic met the legal definition of a supply chain risk.

The ruling means the Pentagon can continue excluding Anthropic from its supply chain and prevent military contractors from using Claude in work for the department.

The dispute followed months of negotiations between Anthropic and the Pentagon over the military use of Claude.

The Department of Defense wanted Anthropic to permit the model for “all lawful uses”, while the company maintained its restrictions on autonomous weapons and mass surveillance.

The dispute intensified in early 2026 before the Pentagon formally excluded Anthropic from its supply chain.

Anthropic sued, arguing that the government had unlawfully targeted the company because of its position on AI safety.

The appeals court rejected that argument, saying the Pentagon acted because Anthropic refused to accept a contract term the department considered essential to national security, rather than because of the company’s advocacy on AI regulation.

Anthropic said it disagreed with the decision and was considering further legal action.

“Another federal court has already held the government’s parallel designation unlawful,” an Anthropic spokesperson said. “We remain confident in our position and are considering all options, including further review.”

Friday’s ruling comes after a separate federal court in California ruled against the government over another designation involving Anthropic.

The California court found that the administration had unlawfully retaliated against Anthropic and blocked the government-wide ban and a separate order preventing military contractors from doing business with the company.

The two cases involved different legal authorities, so the D.C. Circuit ruling did not overturn the California decision.

As a result, the Pentagon can continue to block Anthropic from its systems and defence contracts, while the broader government ban remains restricted by the California ruling.

Anthropic can ask the full D.C. Circuit to rehear the case or take the dispute to the US Supreme Court.

The legal battle has put a significant part of Anthropic’s government and defence business at risk as the company continues to expand its enterprise AI operations.

The case also highlights a wider dispute over how far governments should be able to control the use of advanced AI in military operations, and how much control AI companies should retain over the uses of their technology. (Arise News)