Split with California ruling raises prospect of Supreme Court review
A federal appeals court in Washington ruled 2-1 on Friday to uphold the Defense Department’s designation of artificial-intelligence developer Anthropic as a “supply-chain risk,” giving the Trump administration a victory in its legal fight with one of the country’s leading AI developers.
The court found the statute granting the Pentagon authority to deem a company a supply-chain risk gave Defense Secretary Pete Hegseth the latitude to act against Anthropic, because the company’s refusal to have its AI tools used for mass surveillance or autonomous weapons could undermine military operations. “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,” the court wrote.
Anthropic had argued the designation was an unprecedented retaliation for the company disagreeing with the Defense Department during contract negotiations.
A federal judge in California recently sided with Anthropic in a parallel dispute covering parts of the designation under a different statute, fueling uncertainty about the future of the supply-chain risk label. Legal analysts have said the divergence between the two federal courts could ultimately send the case to the Supreme Court.
“We respectfully disagree with the court’s decision. Another federal court has already held the government’s parallel designation unlawful. We remain confident in our position and are considering all options, including further review,” an Anthropic spokeswoman said.
The supply-chain risk label is normally used on companies based in foreign adversary nations, such as China’s Huawei, that pose national-security risks. AI analysts have said the administration’s move was a self-inflicted wound in the global AI race because it could damage Anthropic, which makes some of the nation’s most powerful models and has said it has lost contracts and suffered reputational harm from the designation.
A win for the government could give the Pentagon more latitude to take similar actions against companies in the future, analysts have said.
The rulings come amid a complicated relationship between the Trump administration and Anthropic, which are working together on the release of new AI models even as the legal fight continues. Anthropic has vaulted ahead in the AI race by many measures and is preparing for an initial public offering in which it is aiming for a valuation of about $2 trillion.
Pentagon officials have said the department is nearly entirely done moving away from Anthropic’s models, using tools from OpenAI and other competitors instead.
Judge Karen LeCraft Henderson, appointed by former President George H.W. Bush, published a dissenting opinion Thursday. “To me this is just a spectacular overreach by the department,” she said during the appeals court hearing earlier this year.
Judge Neomi Rao, appointed during the first Trump administration, backed the government’s argument. At the hearing, Rao characterized the Pentagon’s concern as: “It’s about risk, and they say, ‘Well, based on what we know, we can’t trust that the [AI] model may not have something embedded within it that is going to create a problem for military capabilities.’”