By: Margaret M. Cassidy & Andrew Swick
I. Overview
The federal government wields immense power – it can tax us, lock us up on jail, take our property, close down businesses and more.
It exercised this power against Anthropic when contract negotiations between the Department of Defense (DoD) and Anthropic blew up in a spectacular way culminating with the federal government labeling Anthropic a supply chain risk to national security and, as a result it banned Anthropic’s products across the government and prohibited contractors from even commercial business with Anthropic.
Make no mistake: DoD and the entire federal government have legal authority to designate a business as a supply chain national security risk to mitigate the identified risk.
There are laws that define how this must happen. There are also constitutional limitations on the government as it exercises its power.
Read on for how this situation unfolded and for how Anthropic and DoD ended up in two different courts to address the supply chain risk determination and ban.
II. Federal Government Directives
- February 24, 2026, according to Anthropic court filings, Secretary of Defense Hegseth said Anthropic’s Claude AI had “exquisite capabilities”, DoD should know, it had been using it since 2024.
- February 24, 2026, Hegseth also told Anthropic that if it did not agree by February 27 to permit its AI to be deployed across DoD for “all lawful uses” DoD would either: designate Anthropic a supply-chain risk or use the Defense Production Act to force Anthropic to accept its contracts, presumably on DoD terms.
- February 27, 2026, over social media Hegseth labeled Anthropic a supply chain risk, banned it from DoD and ordered government contractors to cease commercial activity with the company.
- February 27, 2026, President Trump over social media directed all federal agencies to “IMMEDIATELY CEASE all use of Anthropic’s technology”.
- March 3, 2026, DoD sent two letters to Anthropic
- One letter said Anthropic was a DoD supply chain risk based on the military supply chain risk legal authorities and the other letter said it was a supply chain risk based on a law that applies across the government.
- Both letters said that DoD senior letters had conducted a risk assessment and identified risks requiring that DoD take “covered procurement actions” against Anthropic to protect national security.
- Hegseth sent letters to several members of Congress notifying it of DoD’s decisions, as required by the two laws.
- March 9, 2026, Anthropic filed two court cases asking the courts for an injunction to stop the government from banning it: One in federal district court in Northern California and one in the U.S. Court of Appeals for the D.C. Circuit.
This situation is notable because:
- Anthropic is a domestic business and the law’s history suggests the law is to stop foreign adversaries.
- The designation appears to be tied to an impasse in negotiations and “ideology,” not national security.
- Claude was the primary AI platform on DoD’s classified networks and will continue to be there during the wind-down period suggesting it may not be a national security risk.
III. Supply Chain Risk — The Laws and How They Work
Why Supply Chain Risk Laws: Since businesses providing IT products and services to the government can pose a national security risk to federal government IT infrastructure and data housed on government networks, laws permit banning businesses identified as a supply chain risk from government contracting.
DoD explained in its letters to Anthropic that it relied on two different laws to make the decision:
- Requirements For Information Relating to Supply Chain Risk (10 U.S.C. § 3252; DFARS 239.73; DoD Instruction 5200.44).
This supply chain risk law, the DFARS implementing the law and a DoD work instruction on network security apply only to DoD. Together they give the Secretary of Defense authority to take “procurement actions” against contractors that DoD determines are a supply chain risk to national security. DoD’s internal work instruction provides broad directives on how DoD must protect and secure its systems and networks, although it was not referenced in its letters to Anthropic.
- Federal Acquisition Supply Chain Security Act (FASCSA) (41 U.S.C. §§ 1321–1328; 41 U.S.C. § 4713).
FASCSA applies to contractors across the federal government. This law created the Federal Acquisition Security Council (FASC), an interagency committee that coordinates government-wide review of supply chain risks and mitigation of identified risks. FASC must develop criteria for determining when a business is a significant supply chain risk and for when it should be excluded from, or limited in, what it may provide the government.
The U.S. Constitution: Before dissecting these two laws, the U.S. Constitution’s Due Process Clause must be considered: before the government can take property or an interest in property it must provide notice and an opportunity to be heard. Anthropic claims that the government violated the Constitution by taking its property interests without due process, that is taking its business opportunities.
Definition of Supply Chain Risk: The laws define “supply chain risk” in the same way. Specifically, before taking procurement action against an entity, the government must have evidence that the business “may sabotage, maliciously introduce unwanted function, extract data, or otherwise manipulate the design, integrity, manufacturing, production, distribution, installation, operation, maintenance” such that the certain technologies, as defined in the laws, may “surveil, deny, disrupt, or otherwise manipulate the function, use, or operation of technology or information stored or transmitted.”
Identifying Risks: Both laws require procurement officials, and other relevant government officials such as intelligence and cybersecurity consult with one another when determining if there are facts demonstrating an entity is a supply chain risk.
Notice & Opportunity to Be Heard: After determining that an entity does pose a national security risk if in the government’s supply chain, both laws require that the government to issue a written determination (classified or unclassified):
- Notifying the impacted party of the determination and the reasons for the determination
- Why actions to limit business with the government are necessary to protect national security
- Why less restrictive measures are not reasonably available
DoD is permitted to limit disclosure of the information it used to make its decision because of national security. If it does so, it must explain why disclosure would pose a national security risk.
FASCA diverges from the DoD specific law here. It requires that businesses designated as a significant supply chain risk be given at least 30 days’ notice of the proposed exclusion and why it is being excluded so the business may respond with evidence on why it should not be banned. It also allows a designated business to challenge any decisions it believes are unlawful by filing a petition in the U.S. Court of Appeals for the D.C.
This is due process: notice and an opportunity to be heard. If there is an urgent national security risk, this process can be temporarily bypassed so a company can be banned, but ultimately the process must still be followed.
Permitted Bans: Once DoD determines a business is a supply chain risk, there only three “covered procurement actions” it may take are:
- Exclude the business from DoD procurements for failing to meet required qualification standards for reducing supply chain risk
- Exclude the business from DoD procurements for failing to have an acceptable evaluation rating because it is a supply chain risk
- Direct a contractor to not use a subcontractor because it is a supply chain risk.
Under FASCA if a company is a supply chain risk, the government may exclude it from federal government contracting or limit when its technology may be purchased for certain procurements. If designated a supply chain risk, the government may also very likely conclude that the business is not a responsible government contractor. (Click here for The Defense Salon post on what is required to be responsible.) Significantly, like the military supply chain risk statute, FASCSA applies only to federal procurement — not to private sector commercial business.
Congressional and Agency Notification: Both laws require that Congress be notified of the decision, including explaining the risk that drove the decision and why less intrusive measures are not available to reasonably reduce it. FASCA requires that other agencies in the government also be notified.
IV. Anthropic’s Position
In the matters Anthropic filed in courts, it explained that it partnered with the federal government, including DoD, since June 2024, and that its frontier AI was one of the first deployed on DoD’s classified network. At the end of 2025 and early 2026, DoD sought to revise the contract but negotiations broke when DoD refused to accept limits on its use of Claude for:
- Mass surveillance in the U.S., because Claude has not been tested for this use and Anthropic believes it violates fundamental rights.
- Fully autonomous weapons — weapons that operate without human involvement once launched — because Claude has not been tested for this use and there is risk to civilians and U.S. military personnel.
Anthropic says that DoD gave it an ultimatum: allow DoD to use Claude for “all lawful purposes” or be banished. Anthropic did not cave. In response, DoD formally labeled it a supply chain risk and banned the use of Anthropic technology.
Anthropic essentially claims the determination:
- Is “unprecedented” action against a domestic business
- Violates its First Amendment rights
- Violates the Due Process
- Does not comply with the statutes allowing for designating a business a supply chain risk
- Does not comply with required administrative procedures
- Is causing it irreparable harm
- Was done to intimidate and punish it
V. DoD’s Position
According to media reports, DoD wants to use Claude for “any lawful purpose” and will not allow Anthropic to restrict use of its technology in ways that puts military personnel at risk. This position traces back to Secretary Hegseth’s January memo on DoD’s AI strategy, which declared that the U.S. military must adopt emerging AI technologies to dominate adversaries with lethality and efficiency and in doing so, it cannot rely on AI models that “may limit lawful military applications.” Thus, DoD AI contracts must include language permitting the AI model to be used for “any lawful use,” including deploying it with autonomous weapons. Since Anthropic did not agree to this, DoD claims it is a national security risk.
VI. Who Will Win This Battle?
Before a court renders its decision, it is rarely clear who will be the victor. However, given the law and the facts in this case, Anthropic appears to stand a better chance of success in court than the government for the following reasons.
Lack of Facts Proving That Anthropic Is a Supply Chain Risk: DoD essentially designated Anthropic a supply chain risk for having “ideological whims” which make it “incompatible with American principles.” In the letters to Anthropic and to Congress DoD did not provide any facts demonstrating that Anthropic may sabotage, extract data, or otherwise impair the operations of any national security IT systems as required by the laws.
Anthropic’s technology was on classified systems, and it will remain on DoD classified and other systems during the wind-down period. Anthropic holds a facility clearance which means DoD conducted a deep dive on whether it is or could be a national security threat. Anthropic is FedRAMP qualified, which is significant because FedRAMP-qualified technology companies have gone through a rigorous assessment to confirm they have security controls in place. These facts demonstrate that the government determined Anthropic was an acceptable business partner. If Anthropic were truly a national security as defined by law, DoD would not have permitted its technology onto classified systems — nor would it be permitted to remain on any government IT system.
Point goes to Anthropic.
The Federal Government’s Actions Exceed What the Law Permits: Under both laws, when a business is designated as a supply chain risk the government may exclude it from procurements or direct prime contractors not to subcontract to the business. Neither law allows the government to ban all federal government contractors from doing any commercial business with the banned organization as was ordered in the social media posts.
In fact, in its letters to Anthropic, DoD itself stated it is taking only the actions allowed by law — and no more. The government’s own letters underscore that the social media proclamations and government-wide commercial bans exceed legal authority.
Point goes to Anthropic.
C. The Decision Appears Arbitrary and Retaliatory: DoD can take the actions described above only after following the detailed procedures in the law and only when it has facts establishing a business is a national security risk. Governmental decisions to take a property interest because a business would not cede a position in contract negotiations — or because the business is perceived to have certain philosophies — are not grounded in law or facts and present as arbitrary and retaliatory.
If the court makes that determination, it will likely conclude that the government took Anthropic’s property interest without due process of law — a violation of the Constitution under both the military statute and FASCSA.
Point goes to Anthropic.
VI. Contractors & Subcontractors: What to Consider
Assess Your Exposure Immediately: Federal government contractors and subcontractors doing business with Anthropic, should review contractual obligations and termination provisions to determine if continued performance is permissible and whether the government’s directive creates a legal obligation — or merely a strong incentive — to disengage from Anthropic.
The government’s directives to sever relationships with Anthropic may vary by contract vehicle, agency, and program. Consider conducting a fact-specific legal assessment before acting, particularly where termination could trigger breach or performance issues on a federal government contract. Assess whether DoD actions legally require severing business with Anthropic for government and commercial relationships.
Document Decision-Making: Maintain contemporaneous records of communications, legal analysis, business decisions, and any direction from prime contractors or contracting officers related to changing relationships with Anthropic or with the government related to Anthropic. This documentation may be critical if disputes arise later with either the government or Anthropic.
Review Supply Chains: Conduct due diligence on technology and document the diligence. That is document where technology is coming from. Conduct due diligence on suppliers and business partners that provide technology and on subcontractors that perform on prime contracts. Understand and comply with DFARS obligations under the to avoid businesses designated as a supply chain risk.
Know the Rules at the Negotiating Table: If negotiating with the federal government — or seeking to enter the federal market — understand when and how the government can direct contractor actions, impose conditions, ban products or take adverse action. Assess whether the law allows DoD or any part of the federal government to bans contractors or take other actions against contractors over social media such that these orders must be followed. Agreeing to terms during negotiations can create requirements that cannot be met, issues around payment, and long-term compliance and enforcement risk.
