A US federal appeals court has upheld the Pentagon’s designation of Anthropic as a national security supply-chain risk, allowing the Department of Defense to exclude the AI company’s Claude models from its supply chain. The 2-1 ruling came from the US Court of Appeals for the District of Columbia Circuit.

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The dispute followed negotiations over a proposed $200 million deal to develop frontier AI capabilities for national security. Anthropic declined to remove contractual restrictions on using its technology for lethal autonomous weapons and domestic surveillance. The Pentagon subsequently designated the company as a supply-chain risk.

Writing for the majority, Judge Gregory Katsas said the Defense Department had sufficient grounds to conclude that Claude’s restrictions could create a national-security risk. The court rejected Anthropic’s constitutional challenges, including its First Amendment argument.

The ruling does not end the broader legal dispute. A federal judge in California previously rejected a separate government designation involving Anthropic, finding it unlawful retaliation, creating a different legal track from the D.C. Circuit case.

Anthropic said it disagrees with the appeals court decision and is considering further legal review, including a possible hearing before the full appeals court.