A federal appeals court sided with the Pentagon last month, and the supply chain risk label that pushed Claude out of the Department of Defense is still standing. Months later, Anthropic is building its federal business everywhere else instead.
The fight started in February, when Defense Secretary Pete Hegseth gave Anthropic three days to agree Claude could be used for "all lawful uses," according to reporting from Axios and TechCrunch at the time. Anthropic refused to drop its own guardrails against fully autonomous lethal weapons and mass domestic surveillance. Hegseth called Claude's capabilities "exquisite" and the company's objections "understandable," and then followed through anyway: in March, the Pentagon designated Anthropic a national security supply chain risk, a label that cancelled its military contracts and barred other defense contractors from touching its models.
That designation is the reason the Pentagon isn't using Claude today, and it's the reason defense contractors can't either. CNBC reported in early March that defense tech companies were already telling employees to switch models. Anthropic says the fallout has cost it billions of dollars in lost business, landing right as the company heads toward an IPO that could value it at close to $2 trillion.
Two federal courts looked at the same designation and reached opposite conclusions. In August, U.S. District Judge Rita Lin ruled the Pentagon had illegally retaliated against Anthropic for speaking out, violated its due process, and branded it a supply chain risk without lawful basis. That should have been the end of it. It wasn't.
On September 25, a divided panel at the U.S. Court of Appeals for the D.C. Circuit reversed course, voting 2 to 1 to let the designation stand. Judges Gregory Katsas and Neomi Rao formed the majority; Judge Karen LeCraft Henderson dissented. The majority's reasoning, as reported by CNBC and Al Jazeera, leaned on a scenario Hegseth's side raised in briefing: the risk of an "overly constrained AI model shutting down unexpectedly and causing important military operations to fail." Anthropic has said it's considering further review, including a possible appeal to the full circuit or the Supreme Court, and points out that one federal court has already called the government's position unlawful.
OpenAI's Pentagon deal the morning after Anthropic's ban signals how Washington now picks AI winners
When the Trump administration banned Anthropic from federal use in February 2026 and OpenAI announced a Pentagon deal hours later, the sequence exposed something direct: Washington now picks AI vendors through political relationships as much as technical merit. With Cohere merging with Aleph Alpha at a $20 billion valuation and the Pentagon's... - how Washington picks AI winners - federal government AI policy preferences
Here's the part that makes this stranger than a simple ban. The underlying contract was real money: Anthropic signed a $200 million deal with the Pentagon in July 2025, and talks over deploying Claude on the DOD's GenAI.mil platform were still active that September, just months before everything broke down. A government that was negotiating deployment terms in the fall was blacklisting the company by spring.
Everyone else still gets Claude #
While the Pentagon fight drags through appeals, Anthropic has kept building around it. On September 30, the company took Claude for Government to general availability for federal and state agencies, running in a FedRAMP High environment, the strictest security tier the US government uses for cloud services. Agencies can buy it directly, through Carahsoft, or via the GSA's OneGov channel, and Anthropic is offering a reported $1-per-user rate through October 31 to get agencies signed up fast. None of that reaches the Department of Defense. The restriction is scoped specifically to military systems and defense contractor work, which is exactly why Anthropic can keep expanding its government footprint everywhere else while the Pentagon door stays shut. It's a split that would have seemed impossible a year ago: one arm of the federal government locking a company out as a national security risk while other arms sign it up under the government's own highest security clearance.
Frankly, the politics here cut against the usual script. This isn't a company getting punished for being unsafe. Anthropic was blacklisted for refusing to loosen the very safety restrictions that are supposed to be the point of responsible AI deployment. Claude actually hit number one in US app store downloads in March, right after the blacklist made headlines, a reaction Forbes covered at the time as the public siding with the company that said no.
Where this lands now depends on timing nobody fully controls. Anthropic is reportedly targeting a pre-Thanksgiving IPO at a valuation near $2 trillion, according to Fortune and PYMNTS, even as the company posted a $42 billion net loss alongside revenue that grew twelvefold to $4.6 billion in 2025. A legal fight with the Pentagon that drags into that roadshow is not a footnote investors will skip past. The Department of Defense remains off Claude. Everyone else, for now, is signing up.
Also read: Reddit's bot shutdown squeezes a developer with 300000 lines of Python • Australian senator demands OpenAI explain its role in government website hacks • Bitcoin Miner IREN's AI Cloud Revenue Jumped 687% in a Year
The Trump administration designated Anthropic a national security supply-chain risk, forced it to recall its Mythos AI model under export controls, and banned federal agencies from using its products. While OpenAI and Google secured federal contracts by playing the Washington access game, Anthropic's refusal to allow autonomous weapons use has... - why did Trump ban Anthropic - Anthropic supply chain risk designation Pentagon
This article is posted in AI News, check it out for more related stories.
Join the discussion #
Open in the community → Almost there. Sign in and your reply posts straight away.