Tech lawyers and lobbyists say Anthropic’s business is at serious risk despite Thursday’s ruling by a federal judge in California that temporarily blocked the Pentagon from declaring AI startups a national security risk.
Supporters of Anthropic’s stance against the Pentagon were quick to celebrate 43 page order From US District Judge Rita Lynn, which found that the Trump administration unfairly punished Anthropic by labeling it a supply chain risk for restricting the Defense Department’s use of its cloud AI models to monitor US citizens or empower autonomous weapons.
This designation – which has never before applied to a US company – would prevent Anthropic from doing its job contract worth approximately $200 million Partnership with the Pentagon, as well as other federal agencies. But it could also prevent contractors from using Anthropic’s AI models as part of their work with the Pentagon. In Thursday’s decision, Judge Lin wrote that three contractors either ended their work with Anthropic or were instructed to do so by the government, and three deals worth more than $180 million fell apart “despite being on the verge of closing.”
But while Thursday’s decision is a victory for Anthropic, many lawyers and lobbyists said it will do little to lift the cloud of uncertainty hanging over both the company and the broader tech sector.
“Practically speaking, there hasn’t been much change on the supply chain designation for Anthropic because of this initial juncture,” said Charlie Bullock, an attorney and senior research fellow at the Institute for Law and AI think tank. “I think most of the public reaction to this is premature, and does not reflect an understanding of the real situation.”
In the immediate wake of the decision, top Defense Department official Emil Michael emphasized that The supply chain risk designation against Anthropic remains in place. Bullock pointed out that Anthropic won’t be out of the woods until a three-judge panel in the D.C. Circuit Court of Appeals issues its ruling on a separate statute that underpins the government’s supply chain risk designation.
Two of the three judges on that panel — Gregory Catasau and Neomi Rao — were appointed by President Donald Trump, and both have taken broad views about the government’s national security powers.
Bullock said, “I think it’s very possible that they will rule differently than Judge Lynn in the Northern District of California.” “In fact, I would say, it’s likely they will rule differently.”
An Anthropic spokesperson declined to answer questions about the company’s prospects in the DC circuit. A Pentagon spokesperson referred Emil Michael’s comments to Politico.
The tech lobby, which fears negative consequences on the entire industry if the government successfully labels a leading AI firm as a supply chain risk, has come out in favor of Anthropic. The California lawsuit has already forced the government, including Defense Secretary Pete Hegseth, to walk back its more extreme claims claim that Any company working with the military should sever all ties with Anthropic.
But on Friday, lobbyists said Lynn’s decision doesn’t clarify 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 about the impact of using the supply chain designation (DoD) in this manner,” said a senior official at a tech trade association, speaking on condition of anonymity to freely discuss a sensitive issue.
“There is a cloud over the business community,” said Paul Lekas, head of global public policy and government affairs at the Software and Information Industry Association.
In a statement, Lekas said that while the court’s “reasoned opinion provides a degree of comfort to the business community, the legal process is far from over.” On top of the government’s potential appeal in California, he said the parties “are also engaged with the D.C. Circuit.”
When the Defense Department moved to formally label Anthropic as a supply chain risk, it did so under two different statutes. One of those statutes, 41 USC § 4713, can only be decided in the DC Circuit. Unless that court also issues an injunction, the designation against Anthropic will remain in place until a judge decides the case on the merits — an outcome that could take months or years.
“After yesterday’s decision, at least one of the supply chain risk designations is gone,” said Saif Khan, a former national security official in the Biden administration and fellow at the Institute for Progress think tank. “But for Anthropic, from a business perspective, you need both of these before it can really help you.”
Most observers believe that Anthropic faces a difficult path to success on the DC circuit. Ben Murphy, an AI law researcher and Harvard Law School student, said this is partly a function of the specific statute under consideration, which he said “reflects deference to the military.”
“There’s a lot of broad language about determinations related to national security,” Murphy said. “So they certainly will have the textual basis to give the executive branch enough room to run here.”
Rao and Katsas in August rejected a lower court ruling that sought to hold administration officials in criminal contempt for sending 130 Venezuelans to a prison in El Salvador.
Bullock said, “Historically, he has shown a lot of deference to national security claims, and he has very much deferred to the government over executive claims about national security.”
It’s unclear when the D.C. Circuit will rule on Anthropic’s request for a temporary injunction — while the justices rejected the company’s request for a ruling by March 26, a decision could theoretically come at any time.
Anthropic’s lawyer late Thursday night sent a letter Notifying the DC Circuit of Judge Lynn’s decision, arguing that the decision “supports Anthropic’s right to 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 that ultimately the courts will agree that the Department has made no showing to support its extraordinary claim that Anthropic poses a supply chain risk,” Lekas said.
But such a decision could be cold comfort to Anthropic if it comes months or years after it was labeled a supply chain risk. If the D.C. Circuit refuses to temporarily block that designation, Anthropic could lose significant revenue as it fights a lengthy legal battle to lift the label.
“This is really unexpected,” Khan said. “So it’s a frustrating situation for Anthropic.”
