A federal appeals court in Washington, D.C., heard arguments Tuesday in Anthropic's lawsuit against the Department of Defense, which declared the artificial intelligence company a supply chain risk last year, a designation that requires defense contractors to certify they will not use Anthropic's Claude models in their work with the military.
The U.S. Department of Justice, representing the DOD, and Anthropic each had 15 minutes to present their case to a panel of three circuit judges, according to CNBC. Judge Karen Henderson, Judge Gregory Katsas, and Judge Neomi Rao will take the matter under advisement and issue a written opinion. Proceedings began at 9:30 a.m. ET.
Anthropic sued Defense Secretary Pete Hegseth and the DOD in March after the agency applied the supply chain risk label to the company. The designation has historically been reserved for foreign adversaries. Anthropic CEO Dario Amodei said the company had "no choice" but to challenge the supply chain risk designation in court.
The conflict between Anthropic and the Pentagon stems from a breakdown in negotiations. The DOD wanted Anthropic to grant the Pentagon 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. When the two sides failed to reach an agreement, Hegseth blacklisted Anthropic and criticized the company on social media.
In a brief ahead of Tuesday's proceedings, the government argued Anthropic could encode limitations into its model, which presents an "untenable national-security risk." Hegseth determined that Anthropic "undermined the substantial trust required to sustain the relationship," the government's brief stated, in part because Anthropic could "manipulate its model to enforce its own moral and policy judgments about the military's appropriate use of the technology."
Anthropic, in its own brief, said the notion that it could encode limits in future models is unsupported and provides "no basis" for a supply chain risk designation. The company also argued that Hegseth and the DOD violated the Constitution and existing procedures. "The Court should hold the designation unlawful," Anthropic's lawyers wrote.
The appeals court denied Anthropic's request to temporarily block the designation in April, meaning it remains in effect while the lawsuit continues. However, the judges agreed to expedite the case after finding that Anthropic "will likely suffer some irreparable harm" during the litigation. Despite the blacklisting, the DOD continued to use Anthropic's models to support military operations against Iran. President Donald Trump said last month that a deal between the DOD and the startup is "possible."