The ruling means the Pentagon can continue to remove Anthropic's Claude models from its systems and bar other Defense Department contractors from using the company's technology, a designation that Anthropic says has cost it billions of dollars in lost business ahead of a highly anticipated initial public offering.
A dispute over AI safeguards
The conflict began in February 2026, when Anthropic refused a demand from Defense Secretary Pete Hegseth to remove restrictions on the use of Claude for fully autonomous lethal weapons and mass domestic surveillance of Americans. Anthropic CEO Dario Amodei refused to back down, citing the company's concerns about how its products could be used.
In March, the Pentagon formally designated Anthropic a supply chain risk, a label historically reserved for foreign companies and never before used against an American company.
The designation cancelled Anthropic's military contracts and barred other Pentagon contractors from using its technology. The military had been using Claude across a range of classified and sensitive systems.
According to the court's opinion, an Anthropic executive had questioned the use of Claude by Pentagon contractor Palantir during a military operation earlier this year. That objection "led to alarm" and "raised material doubts as to whether they would cause their software to stop working or cause some other disastrous action that would put our warfighters' lives in danger," Under Secretary of Defense Emil Michael said, as quoted in the opinion.
What the court decided
Writing for the two-judge majority, Judge Gregory Katsas said the Pentagon had "ample support" for its actions and that it was reasonable for the department to designate Anthropic after it refused to allow its products to be used for autonomous weapons or mass surveillance.
The court rejected Anthropic's claim that the Pentagon had retaliated against it for its views on AI safety and ethics.
"The Secretary raises the deeply sobering prospect of overly constrained AI models shutting down unexpectedly and thus causing important military operations to fail," Katsas wrote.
Pentagon spokesman Sean Parnell said the ruling "completely validates the Department's position," while Emil Michael wrote on X that "the hammer of justice has smashed Anthropic arguments."
The decision conflicts with a separate federal court ruling in California this summer, where a judge found that a broader ban imposed by the administration against Anthropic was illegal.
That California ruling still allows other government agencies and contractors outside the Defense Department to continue working with Anthropic, and the government has not appealed it.
What's next for Anthropic
Anthropic said in a statement that it "respectfully disagrees" with the decision. "Another federal court has already held the government's parallel designation unlawful," the company said.
"We remain confident in our position and are considering all options, including further review," such as asking the full appeals court to reconsider the three-judge panel's decision.
The stakes are high for the San Francisco-based company, which is valued at nearly one trillion dollars and is expected to pursue a blockbuster IPO in the coming weeks.
Meanwhile, the Pentagon has turned to Anthropic's competitors: OpenAI signed an agreement with the department on the same day Anthropic was banned, xAI signed in February, and Google and Microsoft followed a few months later.
