On Wednesday, a federal appeals panel left that unprecedented designation firmly attached to artificial intelligence startup Anthropic, dealing a significant blow to the company's legal challenge.
The decision by a three-judge panel of the D.C. Circuit Court of Appeals rejected Anthropic's request for an emergency injunction. It allows the Pentagon's supply chain risk label to remain in effect while the broader legal battle continues. The label prohibits defense contractors working with the Department of Defense from using Anthropic's AI models, including its Claude assistant, on any Pentagon contracts.
Anthropic's lawyers had argued the designation was already causing financial losses and inflicting lasting reputational damage. They warned the court that the harm could extend beyond defense contracts to the company's broader commercial business. The judges acknowledged Anthropic would "likely suffer some irreparable harm" but found the government's interests more compelling.
"On one side is a relatively contained risk of financial harm to a single private company," the panel wrote in a four-page ruling. "On the other side is judicial management of how, and through whom, the Department of Defense secures vital AI technology during an active military conflict." The court agreed to expedite its final decision on the case's merits.
A Legal Quirk and Shifting Terrain
The ruling creates a complex legal landscape for Anthropic. Last month, a federal judge in California temporarily blocked the Pentagon's label, a victory celebrated by the company's supporters. However, due to a peculiarity in U.S. law, Anthropic was forced to fight the designation simultaneously in the D.C. Circuit. Legal observers had cautioned that the California win was "premature" without a favorable ruling from the appeals court in Washington.
An Anthropic spokesperson said the company is "grateful the court recognized these issues need to be resolved quickly and remain confident the courts will ultimately agree that these supply chain designations were unlawful." The Department of Defense did not immediately respond to a request for comment.
The panel's composition may have influenced the outcome. Two of the three judges, Gregory Katsas and Neomi Rao, were appointed by former President Donald Trump and have previously taken broad views of executive power in national security matters. In August, the same two judges overturned a lower court ruling that sought to hold Trump administration officials in contempt related to a migrant detention case.
The decision marks a critical juncture in the nearly two-month confrontation between the Pentagon and a leading AI firm. It underscores the growing tensions between rapid technological innovation in the private sector and the government's imperative to safeguard what it deems critical infrastructure and national security interests.
