Overview
On September 25, the U.S. Court of Appeals for the D.C. Circuit upheld the Department of War’s (“DOW”) decision to exclude Anthropic’s Claude and its other products and services from DoW’s supply chain under the Federal Acquisition Supply Chain Security Act of 2018 (“FASCSA”). The decision stands in contrast to a separate district court decision in August that found the Department’s actions were unlawful under a parallel authority at 10 U.S.C. § 3252. The Department can be expected to double-down on prior communications to certain DOW contractors that instructed them to remove Anthropic products and services from certain systems and deliverables to the Government.
FASCSA authorizes executive agencies to exclude sources at the prime contract and subcontract level to address supply chain risks. On March 3, 2026, the Secretary of War made a determination under FASCA and the parallel Title 10 authority to bar Anthropic products and services, including Claude, from the supply chain for contracts with the Department. Anthropic sued, alleging that the action was illegal and violated the First and Fifth Amendments. The D.C. Circuit rejected both arguments and denied Anthropic’s request for permanent injunctive relief.
First, the circuit court interpreted the law to only require that the Secretary of War’s determination was reasonable, and that in cases of ambiguity, the Court should construe the law in favor of the Government because of national security concerns. The Court concluded that the Secretary’s determination was reasonable because the Government introduced evidence that Claude had refused to answer researchers’ questions at one agency and that Anthropic had asserted that a potential Department operation would violate the terms of use for Claude. The Department expressed concern about the potential loss of life if the AI model refused to cooperate during active operations. The Court found that based on the record, that concern was reasonable, and further explained that FASCSA had no requirement that the risk the Secretary found warranted exclusion be malicious—it was sufficient for the court that Claude had the ability to be a risk, regardless of whether the intent of its developer was hostile.
The Court also addressed the opposite conclusion reached by a district court under the Title 10 authority. The circuit court did not disagree with the district court’s determination that the Title 10 authority required a bad motive to support a designation under Title 10, nor the district court’s conclusion that Anthropic has acted with no such bad motive in its dealings with the Department. However, because the circuit court interpreted FASCSA to not require similar intent, a determination under FASCSA was authorized. In contrast, the dissenting opinion in the circuit court opinion opined that FASCSA did require the same kind of malicious intent as the Title 10 authority, and so would have found that the FASCSA authority was unlawfully utilized.
Second, the circuit court held that Anthropic’s due-process claim failed because the Department promptly notified the company of the exclusion and its supporting rationale and then gave the company what the circuit court viewed as a fair opportunity to contest the exclusion.
Third, the circuit court held that Anthropic’ s First Amendment claim failed because, although Anthropic had shown that it engaged in protected speech and that the Department had taken a negative action against it, Anthropic had, according to the court, failed to show a connection between the two. The court characterized the Department’s dispute with Anthropic as contractual and concluded that the Department removed Anthropic from its supply chain not because of its advocacy, but because Anthropic refused to agree to a contract term the Department deemed essential to national security. The court explained that the Department had authority to exclude a supplier based on refusal to accept contract terms.
The Department’s implementation of its FASCSA determination has left open many questions to date. For example, the Department has still not posted a formal exclusion order on the System for Award Management (“SAM”), which is necessary to broadly implement the exclusion. In addition, the Department has suggested that excluded products and services cannot be used on certain systems even if such use would not be carried out in performance of a contract or subcontract, which potentially exceeds the authority granted by FASCSA.
