United States · Business & Corporate Law · Civil Litigation
The Anthropic ban is canceled, but a supply chain risk label stands. What it means for contractors
If your company works for the military and uses Claude, the order that barred you from doing any business with Anthropic has been canceled. But on September 25, 2026, a federal appeals court upheld a second label calling Anthropic a supply chain risk, so Claude stays out of Department of War work.
At a glance
The practical result
- Court
- N.D. Cal. (Judge Lin) and D.C. Circuit (2-1)
- Outcome
- Anthropic largely won in California, lost in D.C.
- Law
- First and Fifth Amendments, federal agency rules law (APA), 10 U.S.C. § 3252, 41 U.S.C. § 4713
- Immediate effect
- Boycott order canceled; Department of War work still barred
In this article
- What the appeals court decided in the Anthropic Pentagon case
- What the judge in California decided on August 27
- What the government restriction covered
- How the case got here
- Why Judge Lin found a legal problem
- What changes for you as a contractor
- What AI vendors and contractors should review
- What happens next in the Anthropic lawsuit
- Your questions about the Anthropic ruling
Short answer: If you hold military contracts and use Claude, two courts have now ruled on different parts of Anthropic's fight with the Pentagon. On August 27, 2026, a federal judge in San Francisco canceled the order that barred military contractors from doing any business with Anthropic, but on September 25, 2026, the federal appeals court in Washington, D.C. upheld a second supply chain risk label, made under a different law, so Claude stays out of Department of War work. Both rulings can still be reviewed further, and this is general information, not legal advice.
What the appeals court decided in the Anthropic Pentagon case
On September 25, 2026, the U.S. Court of Appeals for the D.C. Circuit upheld the Pentagon's second supply chain risk label on Anthropic, the one made under 41 U.S.C. § 4713, a federal procurement security law. The vote was 2-1. Judge Gregory Katsas wrote the opinion, joined by Judge Neomi Rao, and Judge Karen LeCraft Henderson dissented. The court turned down both of Anthropic's challenges, so the Department of War can keep Claude out of its own systems and out of its contractors' work for it.
The court held that § 4713 reaches more than covert sabotage. Its definition covers the risk that "any person" may "otherwise manipulate" how a product works, and the court found that restrictions Anthropic builds into Claude, which have stopped it from doing tasks government users asked for, fit that definition. Anthropic answered that those refusals came from safety features built for private customers and were resolved after its engineers worked with the government agencies involved. The court said that did not change its point: Claude's training does enforce Anthropic's usage limits. It also found the Secretary reasonably concluded that no less intrusive step was available. It rejected Anthropic's due process claim because the Department promptly told the company why it was excluded and gave it a fair chance to contest the exclusion. It rejected the First Amendment claim because, in the court's words, the Department acted "based on the company's refusal to assent to a contract term that the Department deemed essential, not based on the company's support for greater governmental regulation of AI technology."
The ruling does not overturn the August 27 decision by Judge Rita F. Lin in California. The appeals court said it had "no quarrel" with her conclusion that a § 3252 label requires bad motive, or with her finding that Anthropic had none. It held that § 4713 defines supply chain risk much more broadly and requires no bad motive. It also rejected Anthropic's argument that her judgment bound the appeals court, because the two laws raise different questions and because Congress gave the D.C. Circuit alone the power to review § 4713 actions.
An Anthropic spokesperson pointed to Judge Lin's ruling and said the company was considering its next steps, Courthouse News reported. Emil Michael, the Department's Under Secretary for Research and Engineering, welcomed the decision on X, writing that Anthropic is "a supply-chain risk to the defense industrial base."
What the judge in California decided on August 27
U.S. District Judge Rita F. Lin of the Northern District of California ruled for Anthropic on most of its claims on August 27, 2026. She decided the case on the written record, without a trial, because the key facts were not in real dispute. She entered a final order and judgment the same day, ending the case in her court. It is one of four rulings in August 2026 that tested how far the government can go.
The judge declared that the government's actions punished Anthropic for its public statements, which the First Amendment forbids. She also found that the Fifth Amendment entitled Anthropic to fair notice and a chance to respond before being cut off, and it got neither. She permanently barred the agencies that took part from carrying out those actions in any way, and ordered them to withdraw the instructions they had issued to put them in place.
Anthropic did not win everything. The judge rejected its claim that the President overstepped the powers the Constitution gives him, and some claims against HHS, Commerce, the VA, the SEC and NASA. She also refused the government's request to put her order on hold for seven days. Cases like this one, where a business asks a court to stop a government action, are handled by civil litigation lawyers.
What the government restriction covered
The court reviewed three actions. On February 27, 2026, President Trump posted on Truth Social that he was directing every federal agency to "IMMEDIATELY CEASE all use of Anthropic's technology," with a six-month phase-out for agencies such as the Department of War. A little over an hour later, Secretary of War Pete Hegseth posted on X that "no contractor, supplier, or partner that does business with the United States military may conduct any commercial activity with Anthropic." Then, in a March 3 determination and a letter Anthropic received on March 4, the Department formally labeled Anthropic a supply chain risk under 10 U.S.C. § 3252, a law that lets the military shut out suppliers who might sabotage its systems. Secretary Hegseth also signed a second supply chain risk label on March 3 under 41 U.S.C. § 4713, the label the appeals court upheld on September 25.
According to the court's opinion, the dispute began when Anthropic refused to drop contract limits on using Claude for mass surveillance of Americans and lethal autonomous warfare. A March 5 memo from the Department's Chief Information Officer told its offices to remove Anthropic products from all Department systems within 180 days and said the ban applied to all contracts with the military's suppliers, current and future.
- $200M
- ceiling of Anthropic's July 2025 defense AI agreement
- 180 days
- window the March 5 memo gave to remove Claude
- 100+
- enterprise customers who asked Anthropic about the ban
How the case got here
The President orders agencies to stop using Anthropic, and Secretary Hegseth bars military contractors from any business with it.
Secretary Pete Hegseth signs supply chain risk decisions under two laws, 10 U.S.C. § 3252 and 41 U.S.C. § 4713.
Anthropic sues in San Francisco and asks the federal appeals court in Washington, D.C. to review the § 4713 label.
Judge Lin temporarily blocks the three challenged actions while the case goes on.
The government appeals the preliminary injunction to the Ninth Circuit, which later pauses the appeal.
The appeals court in Washington, D.C. refuses to pause the § 4713 label while it reviews the case.
The appeals court in Washington, D.C. hears argument on the § 4713 label.
Secretary Hegseth denies Anthropic's request to reconsider the § 4713 label.
Judge Lin rules for Anthropic, permanently blocks the actions and cancels the § 3252 label.
The appeals court in Washington, D.C. upholds the § 4713 label, 2-1.
Last day for the government to file a notice of appeal from Judge Lin's final judgment.
Deadline for Anthropic to ask the appeals court in Washington, D.C. for a rehearing, unless the court sets another date.
Why Judge Lin found a legal problem
Supply chain risk. Section 3252 defines supply chain risk as "the risk that an adversary may sabotage, maliciously introduce unwanted function, or otherwise subvert" a national security system. The judge read that as aimed at covert acts or hacks, "not overt, public positions regarding contract terms." She found no concrete reason to suspect Anthropic would sabotage its model, and found it undisputed that Anthropic cannot access or control its models once they are deployed.
The contractor boycott. The government admitted that no law allowed the order telling military contractors to stop all business with Anthropic, and did not defend it. The judge vacated it, meaning she canceled it as if it had never been issued.
Speech and fair process. The judge found that the government acted to make "a public example out of Anthropic" for criticizing it, not because of a real sabotage risk. She pointed out that days before the label, Secretary Hegseth had proposed using the Defense Production Act on Anthropic, and that afterward the Department kept negotiating, with Under Secretary Emil Michael writing "I think we are very close here." She also found that Anthropic was cut off without adequate notice or a chance to respond first. A day later, another federal judge in Northern California issued a First Amendment ruling against federal officials in the Stanford Daily case on noncitizens' free speech rights.
| Government action | What the August 27 order did |
|---|---|
| Presidential Directive to stop all federal use | Declared unconstitutional. The agencies that took part cannot carry it out. |
| Hegseth order barring contractors from any business with Anthropic | Canceled, and the agencies are barred from carrying it out. |
| Supply chain risk label under 10 U.S.C. § 3252 | Canceled and sent back to the Department. |
| Nine agencies' steps to carry out the directive | Canceled: agencies punished Anthropic without legal power to do so. |
| Supply chain risk label under 41 U.S.C. § 4713 | Not part of this case. Upheld by the appeals court in Washington, D.C. on September 25, 2026. |
What changes for you as a contractor
The biggest change is for companies that work for the military and also use Claude somewhere else. The Hegseth order would have forced them to drop Anthropic entirely, even for work that had nothing to do with the military. The court vacated that order, so it has no legal effect unless an appeals court revives it. The court found that before it first blocked the actions on March 26, some defense contractors had started to end their reliance on Anthropic, and one Anthropic partner moved a Food and Drug Administration contract to a competing model.
Work on Department of War contracts is different, and the September 25 ruling keeps it that way. In its April 8 order refusing to pause the § 4713 label, the appeals court said the Department had "prohibited its other contractors from using Anthropic as a subcontractor on work performed for the Department," but had not barred contractors from using Claude for other customers. Its September 25 opinion describes the same reach: the Department's memo barred contractors from using Anthropic products in their work for the Department. FedScoop reported on September 4 that Under Secretary Michael said Anthropic "is still a designated supply chain risk" at the department and among the military's suppliers.
Sorting out which of your contracts this touches means reading the actual clauses. Lawyers who practice government and municipal law handle disputes with agencies, and business and corporate lawyers can review how your own supplier and customer agreements are affected.
| Your situation | Where things stand |
|---|---|
| You use Claude for commercial or non-military customers | Canceled by the court: the order barring all business with Anthropic has no legal effect unless an appeals court revives it. |
| You use Claude on a civilian agency contract | Canceled by the court: the agencies that took part cannot carry out the directive, but can still choose vendors lawfully. |
| You use Claude on Department of War contract work | Still barred: the appeals court upheld the § 4713 label on September 25, 2026, though Anthropic can still seek more review. |
| Your contract carries a clause added to carry out the ban | Depends on the clause: agencies must withdraw instructions that carried out the canceled actions, but Department of War limits under § 4713 still apply. |
| Your contracts involve other AI vendors | Not covered: the ruling addresses only the actions taken against Anthropic. |
What AI vendors and contractors should review
If you hold federal contracts and use Claude or build on it, check these five things first. This is general information, not legal advice, and your own contract terms control.
- Contract clauses: find any clause or modification added after February 27, 2026 that restricts Anthropic products, and note which agency added it.
- Contracting officer notices: collect every written instruction about Anthropic and ask whether it has been rescinded since August 27.
- Department of War work: map where Claude is used on Department contracts or subcontracts, since the § 4713 label the appeals court upheld still applies there.
- Non-military work: confirm that commercial and civilian work using Claude is kept separate from Department of War deliverables.
- Deadlines: track October 26, 2026, the last day for the government to appeal Judge Lin's judgment, and November 9, 2026, the rehearing deadline in the § 4713 case unless the court sets another date.
What happens next in the Anthropic lawsuit
As of September 27, 2026, three things are still open. First, the government has 60 days from the August 27 judgment to appeal to a higher court, which makes October 26, 2026 the deadline. We found no notice of appeal on the public docket, and FedScoop quoted a law professor saying an appeal is "all but certain." Second, the government's earlier appeal of the March 26 order is paused in the Ninth Circuit. That court's April 27 order says the government "must file a motion for appropriate relief within 21 days after resolution of" the D.C. Circuit case, "if the stay of proceedings remains in effect at that time." If that clock runs from the September 25 ruling, the earliest date is October 16, 2026. The order does not say whether it runs from the ruling or from the D.C. Circuit's mandate.
Third, Anthropic can seek more review of the September 25 ruling. The federal appeals rules and the D.C. Circuit's own Rule 40(a) give any party 45 days to ask for a rehearing when a federal agency is in the case, which points to November 9, 2026, unless the court sets another date. A rehearing can come from the same three judges or the full D.C. Circuit. The court has held off issuing its mandate, the formal step that closes the case in that court, until seven days after it rules on any timely rehearing request. An Anthropic spokesperson said the company is "considering all options, including further review," according to Defense One, and we found no rehearing request on the appeals court docket. If you need someone to look at your own contracts, our guide to choosing a lawyer lists the questions worth asking first, and our team can help you find one.
Your questions about the Anthropic ruling
Is Anthropic still a supply chain risk?
Yes, under one law. On September 25, 2026, the appeals court in Washington, D.C. upheld the Department of War's § 4713 label, which keeps Claude out of Department of War work. Judge Lin's ruling still cancels the separate § 3252 label and blocks the Presidential Directive and the Hegseth contractor order for the agencies that took part. Either ruling can still be reviewed further.
Did the appeals court overturn Judge Lin's ruling?
No. The two courts looked at different labels under different laws. The appeals court did not question her view that a § 3252 label needs bad motive, but said § 4713 is broader and needs none, so her ruling did not settle it.
Why did the Pentagon label Anthropic a supply chain risk?
The Department said Anthropic's contract limits on mass surveillance and autonomous weapons amounted to an operational veto, and that the company had turned hostile in the press. Judge Lin found no concrete reason to suspect sabotage and concluded the § 3252 label was meant to punish Anthropic for criticizing the government. Reviewing the § 4713 label, the appeals court found the Department acted because Anthropic refused a contract term letting the military use Claude for "all lawful uses," not because of its speech.
Which federal contractors could be affected?
Companies that do business with the military and also use Anthropic's products elsewhere gain the most, because the order barring all business with Anthropic is canceled. Contractors using Claude on Department of War work are still covered by the § 4713 label, which the appeals court upheld.
Does the order apply to all AI vendors?
No. It addresses only the actions taken against Anthropic. It does not change how agencies choose other AI vendors or require any agency to buy Anthropic's products.
Can either side still appeal?
Yes. The government has until October 26, 2026 to appeal Judge Lin's judgment to the Ninth Circuit. Anthropic can ask the D.C. Circuit for a rehearing, due by November 9, 2026 under the federal appeals rules unless the court sets another date, or later ask the Supreme Court to take the case.
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Corrections and updates
Updated after the U.S. Court of Appeals for the D.C. Circuit upheld the separate § 4713 supply chain risk label on September 25, 2026 (No. 26-1049, 2-1 vote). Earlier versions said that label was still under review. What we reported about Judge Lin's August 27 ruling is unchanged, and we checked every docket again on September 27, 2026.
