DC Circuit's 2-1 ruling leaves Pentagon contractors choosing between Claude and the department

Both results can stand at once because the Pentagon grounded its blacklisting in two separate legal designations, and each had to be litigated in a different court ^[7]. Anthropic filed on both tracks in March, suing several agencies including the Defense Department in California and the Pentagon alone at the DC Circuit ^[6]. Of the two designations, one has now been held unlawful and one upheld ^[19].

The February order told all federal agencies and military contractors to stop doing business with Anthropic ^[4]. What survives covers the Pentagon and the companies that sell to it ^[1]. Civilian agencies can buy from Anthropic under the California ruling, which the government did not appeal ^[9]. Contractors cannot, since the designation effectively blocks every Pentagon contractor and supplier from using the company's technology ^[12]. Dan Howley, Yahoo Finance's technology editor, described the contractor's position: a vendor that works with both the Defense Department and Anthropic has to drop Anthropic to keep the government contract ^[13].

How long that lasts depends on further review. The panel stayed its ruling temporarily so Anthropic can ask for a panel rehearing, en banc review by all the circuit's judges, or a Supreme Court hearing ^[10]. The designation has not waited on any of it. In April the same court refused to suspend the sanctions pending a merits decision ^[16].

Judge Gregory Katsas, writing for the majority, found that keeping Claude in the department's information systems created a national-security risk covered by statute ^[14]. He wrote that the department had reasonable grounds to worry Anthropic could modify Claude so it could no longer perform functions the department considered contractually permitted and essential ^[15]. Behind that finding was a $200 million contract dispute over classified deployment, in which Anthropic sought written guarantees against fully autonomous weapons and mass surveillance of Americans ^[3]. On that reasoning, a vendor's own usage limits are the risk. The list had previously been applied mainly to firms linked to hostile foreign states ^[4].

Anthropic could petition for en banc review with Judge Karen LeCraft Henderson's dissent to point to ^[14]. The Supreme Court is the other route ^[10]. A settlement would be faster, though the department's tone does not suggest one: Emil Michael, its chief technology officer, wrote on social media that the hammer of justice had shattered Anthropic's arguments ^[17]. I'd expect defense contractors to keep Claude out of Pentagon-facing work until the full court acts on a petition, since guessing wrong costs them the contract ^[13].

Anthropic made the opposite case. "We respectfully disagree with the court's decision," a spokesperson said. "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." ^[11] An en banc grant, or Anthropic joining the Pentagon's classified-network deals, would show that contractor caution was overdone ^[18].

The Pentagon has already signed with others. Seven major tech firms, including Google, OpenAI, Microsoft and Amazon Web Services, struck deals to put their technology on its classified networks, and Anthropic was left out of the announcement ^[18]. Howley added a complication, saying US operations in Iran and Venezuela used Anthropic's technology and may still be using it ^[20]. The ruling keeps Claude barred inside the Pentagon ^[5]. On Anthropic's commercial base, Howley said "they still have oodles and oodles of customers outside of them," much of it in coding and enterprise work ^[21].