Anthropic's business remains at serious risk despite a Thursday ruling from a federal judge in California that temporarily blocked the Pentagon from declaring the AI startup a risk to national security, tech lawyers and lobbyists say.
Supporters of Anthropic’s stand against the Pentagon were quick to celebrate the 43-page order from U.S. District Judge Rita Lin, which found that the Trump administration improperly punished Anthropic by labeling it a supply chain risk for restricting the Defense Department’s use of its Claude AI model to surveil U.S. citizens or empower autonomous weapons.
The designation — never before applied to an American company — would stop Anthropic from pursuing its roughly $200 million contract with the Pentagon, as well as partnerships with other federal agencies. But it could also bar contractors from using Anthropic’s AI models as part of their work with the Pentagon. In Thursday’s ruling, Judge Lin wrote that three contractors either terminated their work with Anthropic or were instructed to do so by the government, and three deals valued at over $180 million fell apart “despite being on the verge of closing.”
But while Thursday’s decision is a win for Anthropic, several lawyers and lobbyists said it will do little to lift the cloud of uncertainty that’s settled on both the company and the broader tech sector.
“Practically speaking, not that much has changed on the supply chain designation for Anthropic due to this preliminary junction,” said Charlie Bullock, a lawyer and senior research fellow at the Institute for Law and AI think tank. “I think a lot of the public reaction to this is premature, and doesn't reflect an understanding of the actual situation.”
In the immediate wake of the ruling, top Defense Department official Emil Michael insisted that the supply chain risk designation against Anthropic remains in place. Bullock explained that Anthropic won’t be out of the woods until a three-judge panel at the D.C. Circuit Court of Appeals issues its own ruling on a separate statute that underpins the government’s supply chain risk designation.
Two of the three judges on that panel — Gregory Katsas and Neomi Rao — were appointed by President Donald Trump, and both have taken an expansive view of the government’s national security powers.
“I think it's very possible that they will rule in a different way than Judge Lin did in the Northern District of California,” said Bullock. “It’s likely, in fact, I would say, that they will rule in a different way.”
An Anthropic spokesperson declined to answer questions about the company’s chances in the D.C. Circuit. A Pentagon spokesperson did not immediately respond to a request for comment.
The tech lobby, which is fearful of negative consequences to the entire industry if the government successfully labels a leading AI firm a supply chain risk, has landed overwhelmingly on Anthropic’s side. The California lawsuit has already caused the government to climb down from its more extreme assertions, including Defense Secretary Pete Hegseth’s claim that any company working with the military must cut all ties with Anthropic.
But on Friday, lobbyists said Lin’s ruling does not clear up the uncertainty facing government contractors, or the tech industry more broadly.
“As long as the cases and appeals are pending, businesses will not have 100 percent clarity and certainty regarding the impact of [DOD’s] use of the supply chain designation in this way,” said one senior official at a tech trade association, granted anonymity in order to freely discuss a sensitive issue.
Paul Lekas, head of global public policy and government affairs at the Software and Information Industry Association, said that “a cloud remains over the business community.”
In a statement, Lekas said that while the court’s “reasoned opinion provides a degree of comfort for the business community, [t]he legal process is far from over.” On top of the government’s potential appeal in California, he noted that the parties “are also engaged with the D.C. Circuit.”
When the Defense Department moved to formally label Anthropic a supply chain risk, it did so under two separate statutes. One of those statutes, 41 USC 4713, can only be adjudicated in the D.C. Circuit. Unless that court also issues an injunction, the designation against Anthropic will remain in place until judges can decide the case on the merits — an outcome that could take months or years.
"After yesterday’s ruling, at least one of the supply chain risk designations is gone,” said Saif Khan, a former national security official in the Biden administration and a fellow at the Institute for Progress think tank. “But for Anthropic, from a business perspective, you need both of them gone before it actually helps you."
Most observers believe Anthropic faces a steeper path to success in the D.C. Circuit. Ben Murphy, a researcher of AI law and a student at Harvard Law School, said that is partly a function of the specific statute under consideration, which he said “ooze[s] deference to the military.”
“There's a lot of capacious language about determinations related to national security,” said Murphy. “So they certainly will have the textual grounding to give the executive branch a lot of room to run here.”
Rao and Katsas in August threw out a lower court ruling that sought to hold administration officials in criminal contempt for sending 130 Venezuelan men to a prison in El Salvador.
“They’ve shown a ton of deference, historically, to claims about national security, and they've deferred a lot to the government on the executive's claims about national security,” said Bullock.
It’s not clear when the D.C. Circuit will rule on Anthropic’s request for a temporary injunction — while the judges blew past the company’s request for a ruling by March 26, a decision could theoretically come at any time.
Late on Thursday, Anthropic’s lawyers sent a letter to the D.C. Circuit informing them of Judge Lin’s decision, arguing that the ruling “further supports Anthropic's entitlement to a stay pending review.”
Given the perceived weakness of the government’s arguments, most lawyers and lobbyists said they expect Anthropic to ultimately prevail in any merits-based judicial decision.
“We think in the end the courts will agree that the Department has not made a showing to support its extraordinary claim that Anthropic poses a supply chain risk,” said Lekas.
But such a ruling may be cold comfort to Anthropic if it comes after months or years of being labeled a supply chain risk. If the D.C. Circuit declines to temporarily block that designation, Anthropic could lose significant revenue as it fights a drawn-out legal battle to lift the label.
"This is really unpredictable,” said Khan. “So it’s a frustrating situation for Anthropic."
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