A US appeals court upheld on Friday the Pentagon's decision to exclude Anthropic from its supply chain, a decision taken when the AI startup refused to remove certain safeguards on its Claude model.
The conflict began in February when Anthropic refused Pentagon Secretary Pete Hegseth's demand to remove restrictions on the use of Claude for fully autonomous lethal weapons and mass domestic surveillance of Americans.
The supply chain risk designation, formally made in March, canceled 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 decision, an Anthropic executive had questioned the use of Claude by a Pentagon contractor, Palantir, during the military operation that captured Venezuelan President Nicolas Maduro on January 3.
This 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," according to Under Secretary of Defense Emil Michael, as quoted in the opinion.
Anthropic insists it cannot modify its models once delivered to the military.
But the company determines the behavior of each new version, and the military must keep up to date on the latest offerings, the Washington appeals court found.
In his opinion Judge Gregory Katsas, writing for two of the three appellate judges, said "in our Republic, it is the President and the Secretary of War who must determine how best to balance" risks.
The designation against Anthropic marked a highly unusual application of the authority against a US company.
The Pentagon immediately turned to its competitors.
Its major rival OpenAI, creator of ChatGPT, signed an agreement on the same day as Anthropic's ban, while xAI, Elon Musk's company that develops Grok, signed in February and Google and Microsoft a few months later.
Anthropic has since become a pariah at the White House, even as it plays a major role in the highly crucial AI sector and, valued at nearly one trillion dollars, heads for a blockbuster IPO expected in weeks.
The White House has also bristled at Anthropic CEO Dario Amodei's repeated warnings about the dangers of AI -- with US President Donald Trump calling them a hoax.
Michael celebrated the ruling on X, writing: "The hammer of justice has smashed Anthropic arguments."
"Warfighters will sleep better knowing that no private company will insert their opinions in the chain of command."
The appeals court decision conflicted with a separate federal court decision in California that found last month that a broader ban imposed by the Trump administration against Anthropic was illegal.
The Pentagon decision upheld on Friday was based on public procurement regulations and now remains in effect.
"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 spokesperson said in a statement to US media.