Anthropic loses appeals court bid to temporarily block DOD ruling

The artificial intelligence startup sought the action to pause its blacklisting by the Pentagon and prevent further monetary and reputational harm as the case unfolds. The ruling comes after a judge in San Francisco federal court late last month, in a separate but related case, granted Anthropic a preliminary injunction that bars the Trump administration from enforcing a ban on the use of Claude.

The DOD declared Anthropic a supply chain risk in early March, meaning that use of the company’s technology purportedly threatens U.S. national security. The label requires defense contractors to certify that they don’t use Anthropic’s Claude AI models in their work with the military.

“In our view, the equitable balance here cuts in favor of the government,” the appeals court said in its decision. “On one side is a relatively contained risk of financial harm to a single private company. On the other side is judicial management of how, and through whom, the Department of War secures vital AI technology during an active military conflict.”

Anthropic had asked the appeals court to review the Pentagon’s determination and argued that it’s a form of retaliation that’s unconstitutional, arbitrary, capricious and not in accord with procedures required by law, according to a filing. 

In the ruling on Wednesday, the court acknowledged that Anthropic “will likely suffer some degree of irreparable harm absent a stay,” but that the company’s interests “seem primarily financial in nature.” While the company claimed the DOD was standing in the way of its right to free speech, “Anthropic does not show that its speech has been chilled during the pendency of this litigation,” the order said.

The DOD relied on two distinct designations – 10 U.S.C. § 3252 and 41 U.S.C. § 4713 – to justify the supply chain risk action, and they have to be challenged in two separate courts. The 41 U.S.C. § 4713 designation falls under the purview of the appeals court in Washington, D.C.

Anthropic’s suit against the Pentagon in March followed a dramatic couple weeks in Washington D.C., between the Department of Defense and one of the most valuable private companies in the world.

In a post on X in late February, Defense Secretary Pete Hegseth declared Anthropic a supply chain risk, and the DOD soon notified the company of the official determination via a letter. Anthropic is the first American company to be given the designation, which has historically been reserved for foreign adversaries.

Shortly before Hegseth’s post, President Donald Trump wrote a Truth Social post ordering federal agencies to “immediately cease” all use of Anthropic’s technology. He said there would be a six-month phase-out period for agencies like the DOD.

The Trump administration’s actions surprised many officials in Washington, where Anthropic’s technology had become embedded in numerous agencies. The company was the first to deploy its models across the DOD’s classified networks, and it was championed for its ability to integrate with existing Defense contractors like Palantir. 

Anthropic signed a $200 million contract with the Pentagon in July, but as the company began negotiating Claude’s deployment on the DOD’s GenAI.mil AI platform in September, talks stalled.

The DOD wanted Anthropic to grant the Pentagon unfettered access to its models across all lawful purposes, while Anthropic wanted assurance that its technology would not be used for fully autonomous weapons or domestic mass surveillance. 

The two failed to reach an agreement, pushing the dispute to court.

Because of the harm Anthropic is likely to suffer, the appeals court said it agrees with the company that “substantial expedition is warranted.”

— CNBC’s Dan Mangan contributed to this report.

WATCH: Anthropic wins preliminary injunction in fight over Pentagon blacklisting