A US appeals court has upheld the Pentagon's decision to label Anthropic a supply chain risk, barring the military and its contractors from using Anthropic's Claude models. The 2-1 ruling rejected Anthropic's argument that the ban was arbitrary, unauthorized, and unconstitutional.

The Department of Defense had acted under a 2018 supply chain security law, citing national-security risks associated with Anthropic's refusal to relax contract terms on Claude. The terms barred the use of Claude for lethal autonomous warfare or domestic surveillance.

Anthropic argued that the exclusion was arbitrary, not allowed by the law, and unconstitutional. However, the court found that the Pentagon had acted over a contract term it saw as essential, and that Anthropic had received prompt notice and a fair chance to contest the exclusion.

Circuit Judge Gregory Katsas wrote the opinion, joined by Circuit Judge Neomi Rao. Circuit Judge Karen LeCraft Henderson dissented, disagreeing on how to read the law. The law covers a supplier that could "sabotage", "extract data" or "otherwise manipulate" a product.

The case began in March when the Pentagon labeled Anthropic a supply chain risk, and Anthropic sued the government days later. The Pentagon relied on two separate designations, so the case ran in two courts. In August, a federal judge in San Francisco struck down one designation, while Friday's ruling leaves the second one in place.

Anthropic said it disagreed with the decision and is considering all options, including further review. The company had previously served as an early partner across many US agencies, including the Department of Defense, but talks collapsed over the deployment of Claude on the DOD's GenAI.mil AI platform.

The DOD wanted Anthropic to grant the military 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 dispute ultimately led to the Pentagon's decision to label Anthropic a supply chain risk.

This article was written with the assistance of AI.
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