The D.C. Circuit’s decision in Anthropic PBC v. U.S. Department of War, No. 26-1049 (D.C. Cir. Sept. 25, 2026) (“Anthropic”), establishes a troubling precedent for defense contractors by broadly expanding the Federal Acquisition Supply Chain Security Act (FASCSA) of 2018, 41 U.S.C. § 4713. By upholding the Department of War’s exclusion of Anthropic’s AI model Claude from government supply chains, the court transformed FASCSA from a statutory shield against malicious foreign cyber espionage into a potentially coercive mechanism for federal procurement. The majority’s interpretation of “supply chain risk” undermines commercial contracting autonomy, exposes vendors to procedural vulnerabilities, and creates uncertainty and risk for commercial technology firms seeking to partner with the national security sector.
This ruling represents the culmination of two cases brought by Anthropic following Secretary Hegseth’s determination on March 3, 2026. That determination rested on two separate statutory bases. The first was 10 U.S.C. § 3252, which Anthropic challenged by filing suit in the Northern District of California. The second was FASCSA, which provides for exclusive jurisdiction in the D.C. Circuit and under which Anthropic promptly filed a petition for review.
With respect to the first case, the Judge Rita Lin granted summary judgment for Anthropic on all but one of its claims (the exception being a claim that President Trump exceeded his own authority), finding that the supply chain risk designation amounted to unconstitutional retaliation based on an “empty invocation of national security.” Anthropic PBC v. U.S. Department of War, No. 26-cv-01996-REL, ECF No. 250 at 2 (N.D. Cal. Aug. 27, 2026).
On September 25, the D.C. Circuit found the opposite: invoking the need for “more deference” to the Department of Defense on questions that involve “assessments of national security,” the court dismissed Anthropic’s petition. Anthropic at 17.
Government contractors, and especially technology vendors, should pay close attention to the court’s expansive interpretation of “supply chain risk” in 41 U.S.C. § 4713(k)(6). FASCSA defines supply chain risk as actions that “sabotage, maliciously introduce unwanted function, extract data, or otherwise manipulate” system design to “deny, disrupt, or otherwise manipulate” operation. Anthropic had argued that this definition was created to guard against “[h]ostile nation states and other bad actors” and should be interpreted narrowly to include ill intent, thus excluding Anthropic – “an American company committed to U.S. national security without ties to foreign adversaries.” Pet’r. Emerg. Mot. for Stay Pending Review at 17, Anthropic PBC v. US. Department of War, No. 26-1049 (D.C. Cir. Mar. 11, 2026).
The majority rejected this interpretation, and undertook a detailed review of the statutory construction to conclude that the listed verbs did not create a requirement of bad motive or surreptitious intent. Under the majority’s reading, the term “manipulate” meant only to “to skillfully arrange, operate, or control” without any contextual motive, and the term “deny” meant only “to decline to grant or allow.” Applying this broader approach, the majority found that Anthropic could be classified a “supply chain risk” based on “what Anthropic does, not why Anthropic does it.” Anthropic at 23-32.
The dissent by Judge Henderson focused entirely on this issue, employing the same rules of construction, along with legislative history, to reach the opposite conclusion, namely that FASCSA was created to address supply chain risks created by “nefarious actors” undertaking “intentionally subversive acts, carried out through deceptive means.” Id. at 44-51.
Importantly, Judge Henderson identified the consequences of the broader definition: “Using the Secretary’s sterilized definition, the majority concludes that a contractor immediately poses not only a risk but a certainty of manipulating a covered article if it is willing and able to enforce contractual restrictions on an article’s functioning that the Department deems unreasonably restrictive.” Id. at 50 (cleaned up). By stripping away the requirement of hostile intent, the ruling conflates legitimate, transparent contractual licensing terms with hostile sabotage, transforming routine commercial disagreements into national security threats.
This statutory broadening creates the risk of commercial coercion for defense contractors. Under this precedent, any contractor seeking to negotiate terms or limit its product’s deployment—whether to comply with corporate safety policies, ethical commitments, or risk management frameworks—faces the possibility those positions may be construed as manipulation or denial sufficient to qualify as a “supply chain risk.” The decision effectively grants executive agencies new leverage to rewrite commercial licenses under threat of statutory exclusion. Technology vendors developing cutting-edge, dual-use capabilities like artificial intelligence may face a dilemma: forfeit control over how their intellectual property is integrated or risk being officially designated a national security risk.
Furthermore, the ruling severely compromises contractors’ procedural rights under federal law. While FASCSA mandates pre-deprivation notice and an opportunity to respond before an exclusion occurs, the court sanctioned the Department’s use of emergency ex parte exclusions under § 4713(c) and applied the “harmless error” doctrine to dismiss Anthropic’s procedural challenge. Id. at 33-38. By holding that post-hoc administrative reconsideration cured the denial of advance notice, the court effectively drained statutory procedural safeguards of their force. Contractors are left vulnerable to sudden, unannounced removals from government networks, suffering immediate reputational and financial harm while facing an uphill battle against entrenched bureaucratic momentum.
Ultimately, the D.C. Circuit’s interpretation of FASCSA creates a new and less certain environment for government contractors. It is unclear what steps Anthropic will take in appealing the DC Circuit’ decision (should it decide to do so), however, the court’s broad interpretation of the statutory definition creates real concerns for technology companies to evaluate today. In the long run, this standard risks driving top-tier commercial tech innovators away from the defense market, wary that offering specialized software to the military could expose them to arbitrary statutory blacklisting for which relief is unavailable.
