Pentagon blacklist of Anthropic ruled illegal

A federal judge in San Francisco has voided the Pentagon's designation of Anthropic as a supply chain risk, finding that the Department of Defense imposed the label in violation of the First Amendment. U.S. District Judge Rita Lin issued the order on Thursday, as reported by The New York Times.

At a glance

• The designation, in force since March, barred defense contractors from using Anthropic's technology in their work for the agency and made the company the first American firm publicly named a supply chain risk.
• Lin wrote that the government is owed deference on national security matters, but that the Department of Defense acted without any articulable basis and sought to make a public example of Anthropic.
• Because the Pentagon relied on two distinct designations, Anthropic had to sue in two courts; the Washington case continues, so the company technically remains a supply chain risk for now.

The ruling tests how far the government can go in penalizing a supplier for what it says publicly rather than for what its products do. For Anthropic the legal win is broader than the immediate commercial one, since the blacklisting cut off defense business that the company appears able to pursue again only after the parallel case ends. The reasoning is likely to matter to other vendors negotiating usage limits with the military.

Lin found the designation rested on Anthropic's criticism of the administration

Lin found that the Department of Defense violated the First Amendment when it labeled Anthropic a supply chain risk, a status that formally marks a company as a threat to U.S. national security. She wrote that the government is owed deference on national security questions, but that its action here rested on no articulable basis and on a desire to make a public example of the company.

In the order, Lin recorded the government's stated rationale: that Anthropic had behaved in an increasingly hostile manner through the press and criticized the Department of War's views on AI use, and that defendants therefore could not trust the company to ensure the integrity of its models.

Neither the Constitution nor the federal statute invoked by Defendants allows them to impose sweeping penalties based principally on Anthropic's critique of the Administration's views.

The March designation followed collapsed talks over military use of Claude

The Department of Defense applied the designation in March, after negotiations over how the military could use Claude broke down. Anthropic wanted assurance that its models would not be used for fully autonomous weapons or domestic mass surveillance, while the department wanted unfettered access to Claude across all lawful purposes.

The talks escalated before collapsing, and Anthropic became the first American company to be publicly named a supply chain risk. In a CNBC segment, a Department of Defense Under Secretary said the company's own actions made evident that it was a supply chain risk.

Anthropic has said it brought the lawsuits in an effort to return its business to the position it held before the designation, and it has noted that the suits would not require the Pentagon to restart its own work with the company.

The Pentagon relied on two designations, so Anthropic sued in two courts

The Department of Defense relied on two distinct designations to justify the supply chain risk action, and each had to be litigated separately. Anthropic sued the Trump administration in San Francisco and in Washington, D.C. Lin's order resolves the San Francisco case in the company's favor, while the Washington litigation continues.

A spokesperson told CNBC that Anthropic welcomes the court's ruling that the designation was unlawful and that the company remains focused on working productively with the government to harness AI for national security so all Americans benefit from the technology.

The company has shown no signs of a slowdown since the blacklisting, and the ruling removes a significant obstacle as it moves toward an initial public offering expected to be near-record in size. Restored ties with the Pentagon would reopen business that the designation had cut off.

What the Washington case still decides Until the Washington litigation over the second designation is resolved, Anthropic technically remains a supply chain risk. Lin's order addresses only the designation litigated in San Francisco. No hearing dates or timetable for that case have been named, and there is no date for when the designation might be lifted in full.