Category: Artificial Intelligence and Emerging Technologies

D.C. Circuit Upholds the Anthropic Ban: What It Means for Federal Contractors

Robyn N. Burrows, Michael J. Montalbano, and Justin A. Chiarodo ●


On September 25, 2026, the U.S. Court of Appeals for the D.C. Circuit issued its much-anticipated decision in Anthropic PBC v. U.S. Department of War, No. 26-1049, upholding the Department of War’s (“DOW”) exclusion of Anthropic’s Claude artificial intelligence (“AI”) models from its supply chain under the Federal Acquisition Supply Chain Security Act of 2018 (“FASCSA”), 41 U.S.C. § 4713. The ruling means the Government may continue its efforts to require contractors to cease the use of Anthropic as part of the performance of federal contracts. This post summarizes the decision and steps contractors should consider taking in response.

Background

As we covered in our prior blog post, the dispute between Anthropic and the federal government began with a contract disagreement over AI usage restrictions (Anthropic held a $200 million Pentagon contract and was the first frontier AI company to deploy models on classified government networks). Anthropic maintained two “red lines”: it refused to allow its Claude AI model to be used for mass domestic surveillance of Americans or in fully autonomous weapons systems. When the DOW demanded that Anthropic agree to “all lawful use” of its technology without these restrictions, Anthropic refused. On February 27, 2026, President Trump and Secretary of War Pete Hegseth announced on social media their intention to remove Anthropic from the federal supply chain.

On March 3, 2026, Secretary Hegseth issued a formal determination under FASCSA to take covered procurement actions against Anthropic, finding that the continued integration of Claude into DOW systems presented a “significant supply chain risk,” that removal was “necessary to protect national security,” and that no “less intrusive measures” were “reasonably available.” The Secretary also determined that an “urgent national security interest” required immediate action. The DOW’s Chief Information Officer then ordered removal of all Anthropic products from DOW systems within 180 days and prohibited contractors from using Anthropic products in DOW work.

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Decoupling from Chinese Chips: Unpacking the Proposed Section 5949 Supply Chain Ban

Robyn N. Burrows and Samarth Barot ●

Samarth Barot headshot image

In December 2022, we discussed the passage of Section 5949 of the Fiscal Year 2023 National Defense Authorization Act (“NDAA”), which introduced prohibitions on certain semiconductor products and services from designated Chinese manufacturers. At the time, the statute’s scope remained unclear, particularly regarding whether the restrictions would apply only to federal sales or extend to contractor “use” of covered technologies, similar to Section 889’s Part B prohibition. On February 17, 2026, the Federal Acquisition Regulatory (“FAR”) Council released a proposed rule that provides important clarity on these questions and establishes a compliance framework for government contractors.

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Understanding the Potential Anthropic Ban: Key Considerations for Federal Contractors

Robyn N. Burrows and Merle M. DeLancey, Jr. ●

On February 27, 2026, President Trump posted on Truth Social directing all federal agencies to “immediately cease” use of Anthropic’s artificial intelligence (“AI”) technology. Simultaneously, Defense Secretary Pete Hegseth announced on X he was designating the company a “supply chain risk to national security” and prohibiting federal contractors from doing any business with Anthropic. This unprecedented action against a domestic company has significant supply chain implications for government contractors. Below, we summarize what led to this development, the legal authorities pertaining to supply chain bans, and practical guidance for contractors navigating this evolving situation.

1. Background: From Contract Dispute to Presidential Directive

The conflict between Anthropic and the federal government emerged from a contract dispute over the company’s AI usage restrictions. Anthropic, which holds a $200 million Pentagon contract and was the first frontier AI company to deploy its models on classified government networks, maintained two “red lines” in its contract negotiations: it refused to allow its AI model, Claude, to be used for mass domestic surveillance of Americans or in fully autonomous weapons systems.

The Pentagon demanded that Anthropic agree to “all lawful use” of its technology without Anthropic’s proposed restrictions. Anthropic’s refusal led President Trump and Secretary Hegseth to announce their decisions against Anthropic on social media. Secretary Hegseth stated that Anthropic would be “immediately” designated a supply chain risk, prohibiting any federal contractor working with the military from “any commercial activity with Anthropic.”

Anthropic has announced it will challenge the supply chain risk designation in court, calling it “legally unsound.”

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Federal Circuit Clarifies “Interested Party” Status in Percipient.ai v. United States

Robyn N. Burrows and Michael Joseph Montalbano ●

When a Federal Circuit panel held that subcontractors had standing to challenge procurement violations, Judge Clevenger warned of a flood. Under the panel’s holding, thousands of subcontractors could inundate the Court of Federal Claims with allegations that agencies had violated applicable procurement laws. Progress on major programs could slow as the Government dealt with a wave of new protest litigants.

On August 28, 2025, the full Federal Circuit reversed course. The Court reaffirmed the long-standing definition of “interested party,” holding that only actual or prospective bidders or offerors with a direct economic interest in the outcome of the procurement may protest.

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Defense Contractors’ Restrictions When Contracting with Chinese Companies

Merle M. DeLancey, Jr. and Oliver E. Jury ●

In the current economic climate, the obvious focus of many companies is on the administration’s imposition of tariffs. However, government contractors, especially those contracting with the U.S. Department of Defense (“DoD”), must not lose sight of their current and potential future direct and indirect relationships with certain Chinese entities.

Contractors’ compliance obligations regarding relationships with Chinese entities flow from:

  • FAR 52.204-25 (Section 889 of the 2019 National Defense Authorization Act (“NDAA”)), and
     
  • The Chinese Military Companies (“CMC”) List (Section 1260H of the 2021 NDAA) (also known as the “1260H List”).

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OMB Embraces Government Use of Artificial Intelligence

Robyn N. Burrows and Sara N. Gerber ●

Last month, the Office of Management and Budget (“OMB”) issued a memorandum directing federal agencies to adopt artificial intelligence (“AI”) and advance its use to inform and carry out agency actions. OMB’s new policy addresses three main areas it views as necessary for responsibly deploying AI in agency decision-making: (1) strengthening AI governance; (2) advancing AI innovation; and (3) managing risks from the use of AI. With OMB encouraging the use of AI to streamline agency actions wherever possible, government contractors can also expect to see AI increasingly used in the procurement process.

AI Governance

OMB directed agencies to designate a Chief AI Officer whose responsibilities will include coordinating agency use of AI, developing a workforce with the skillsets necessary for implementing AI, and “identifying and prioritizing appropriate uses of AI that will advance both their agency’s mission and equitable outcomes.”

The Chief AI Officer is also tasked with ensuring that AI code and the data used to develop and test AI are inventoried and shared in data repositories. That individual must also prepare and submit annually to OMB an “AI use case inventory” documenting instances in which AI is used to address a particular need. For example, the Department of State’s (“DOS”) AI Inventory includes a bot that it developed “to automate the data entry in the Federal Procurement Data System” which the State Department reports has reduced the burden on the agency’s procurement staff and improved compliance on DATA Act reporting.

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