A federal appeals court panel in Washington, D.C., upheld the Department of Defense's designation of Anthropic as a supply chain risk in a 2-1 decision, rejecting the AI company's challenge that the ban on its Claude models was arbitrary and unconstitutional. Judges Gregory Katsas and Neomi Rao, both Trump appointees, formed the majority, while Judge Karen LeCraft Henderson, a Bush appointee, dissented. The March 2026 designation bars the U.S. military and its defense contractors from integrating Anthropic's models into DOD information systems. The ruling stems from collapsed negotiations over a $200 million contract signed in July 2025 for deployment on the GenAI.mil platform; talks broke down in September 2025 when the DOD demanded unfettered access to Claude for all lawful purposes, while Anthropic sought contractual guarantees against use in fully autonomous weapons or domestic mass surveillance. The majority found the DOD reasonably feared Anthropic might manipulate model design to block national-security functions deemed contractually authorized. A parallel San Francisco ruling last month invalidated one of two DOD designations, but the D.C. Circuit upheld the second. The appellate panel stayed its decision to allow Anthropic time to petition for panel rehearing, en banc review, or Supreme Court certiorari.