On March 3, 2026, the U.S. Department of War (DoW) designated frontier AI model developer Anthropic as a “supply chain risk” to national security. The designation followed a breakdown in contract renegotiations in which DoW sought to have Anthropic remove certain usage restrictions from its AI models.
DoW designated Anthropic under two separate statutory authorities, 10 U.S.C. § 3252 and 41 U.S.C. § 4713. This was preceded by a social media post from President Trump ordering all federal agencies to cease use of Anthropic's technology (the “Presidential Directive”) and a post from Secretary of War Hegseth barring DoW contractors from “any commercial activity” with the company (the “Hegseth Directive”).
Anthropic challenged these actions in two federal courts: the Northern District of California (challenging the § 3252 designation, the Presidential Directive, and the Hegseth Directive) and the D.C. Circuit (challenging the § 4713 designation under that statute’s exclusive judicial review provision).
On March 26, 2026, Judge Rita F. Lin of the Northern District of California granted Anthropic's motion for a preliminary injunction, blocking the § 3252 designation, the Presidential Directive, and the Hegseth Directive. The court found that Anthropic was likely to succeed on the merits of its claims that the designation violated the First Amendment as retaliation for Anthropic's public advocacy on AI safety, violated the Fifth Amendment's Due Process Clause, and was “likely both contrary to law and arbitrary and capricious” under the Administrative Procedure Act (APA).
However, Anthropic's separate designation under § 4713 (part of the Federal Acquisition Supply Chain Security Act (FASCSA)) remains in effect, and the D.C. Circuit panel has not yet ruled on Anthropic's emergency motion to stay.
The Northern District of California decision addressed only the § 3252 designation and the two executive directives. Contractors should track both proceedings closely. While the preliminary injunction provides some degree of near-term relief, certain affirmative compliance obligations persist for government contractors under the § 4713 framework.
Parallel suits
On March 9, 2026, Anthropic filed challenges to the supply chain risk designations in two separate courts.
The § 3252 designation, the Presidential Directive, and the Hegseth Directive were challenged in the U.S. District Court for the Northern District of California, Anthropic PBC v. U.S. Department of War, No. 3:26-cv-01996 (N.D. Cal.). Anthropic brought claims under the First Amendment, Fifth Amendment Due Process Clause, and APA, and also asserted an ultra vires challenge to the Presidential Directive.
The § 4713 FASCSA designation was challenged separately in the U.S. Court of Appeals for the D.C. Circuit, Anthropic PBC v. U.S. Department of War, No. 26-1049 (D.C. Cir.), as FASCSA provides for judicial review exclusively in that court. Anthropic filed an emergency motion for a stay pending review. Briefing on the emergency stay motion was completed on March 23, 2026, and as of the date of this alert, the panel has not yet ruled on that motion.
Northern District of California decision
In a 43-page opinion accompanying the preliminary injunction order, Judge Lin found that Anthropic had demonstrated a likelihood of success on the merits of its First Amendment retaliation claim, its Fifth Amendment due process claim, and its APA claim.
The preliminary injunction enjoins each of the Presidential Directive, the Hegseth Directive, and the § 3252 designation. The order does not require DoW to use Anthropic’s products and does not prevent DoW from transitioning to other AI providers through lawful means. Judge Lin granted a seven-day administrative stay of the injunction to provide the government an opportunity to seek an emergency stay from the Ninth Circuit.
Scope of § 3252 designation
The Northern District of California proceedings clarified the scope of the DoW’s § 3252 designation as narrower than the administration initially suggested. At oral argument, counsel for the government confirmed that the legal effect of the § 3252 designation is to “prevent Anthropic from being utilized as a subcontractor in covered settings.” The government agreed that if a DoW contractor used Claude Code under a general license as a tool to write software for a DoW national security system, that action would not be prohibited under the § 3252 designation.
Additionally, the government confirmed that contractors doing work for DoW would not be terminated for using Anthropic for non-DoW work. The relevant DFARS clause (DFARS 239.73) defines a “covered item of supply” as an item of information technology “purchased for inclusion in a covered system” and provides that the definition “does not include any equipment acquired by a contractor incidental to” a covered contract.
§ 4713 designation remains in effect
Unlike the § 3252 designation, the § 4713 FASCSA designation was not reached by the Northern District of California’s preliminary injunction. The § 4713 designation applies more broadly than § 3252 to all DoW “covered procurements” involving “covered articles,” which include information technology, telecommunications equipment and services, and hardware, software, or services with embedded or incidental information technology.
Upon a § 4713 supply chain risk determination, DoW is authorized to exercise a range of covered procurement actions, including withholding consent for a contractor to subcontract with a designated source, directing contractors to exclude a source from consideration for subcontracts, and determining that a contractor relying on a designated source is not a “responsible source” for future contract awards.
Section 4713 is primarily operationalized through FAR 52.204-30, which prohibits the use of products or services from a designated source “as part of the performance” of a covered contract, regardless of whether those products are delivered to the government. Contractors holding DoW contracts or subcontracts containing this clause are subject to affirmative compliance obligations, including a reasonable inquiry into the use of designated source products and services, reporting to the contracting officer within three business days of identifying any such use, and submission of mitigation plans within ten business days.
Contractors should note the broader scope of the § 4713 authority compared to § 3252. Notably, § 4713 extends beyond formal subcontracting relationships between contractors and Anthropic. Aggressive interpretations of the “responsible source” determination and the “as part of the performance” standard under FAR 52.204-30 may capture uses of Anthropic products and services that fall outside the narrower § 3252 framework, such as the use of Claude Code under a general license to write software that ends up in a DoW system.
Next steps
Anthropic’s litigation will continue to evolve. Federal contractors should consider taking the following steps to mitigate risk.
Monitor the government's appeal of the Northern District of California decision
The preliminary injunction order is stayed for seven days, during which the government may seek an emergency stay from the Ninth Circuit. If the Ninth Circuit grants a stay, the § 3252 designation, Presidential Directive, and Hegseth Directive could be reinstated pending appeal. Contractors should be prepared to adjust their compliance posture on short notice.
Monitor the D.C. Circuit's forthcoming decisions on the § 4713 designation
Anthropic’s emergency stay motion remains pending before the D.C. Circuit. A ruling on the stay motion, and ultimately on the merits of the petition, will determine whether the § 4713 designation remains in effect.
Continue to evaluate compliance obligations
Because the § 4713 designation is not affected by the Northern District of California's preliminary injunction, contractors holding DoW contracts containing FAR 52.204-30 should continue to assess whether Anthropic products or services have been used “as part of the performance” of their contracts. Organizations should also review their contracts for the presence of DFARS 252.239-7018, which relates to the § 3252 designation and may be affected by the preliminary injunction.
Assess vendor concentration risk
Regardless of the litigation outcomes or government contractor status, the DoW supply chain risk designations highlight the risks of AI vendor lock-in more broadly. Organizations that have integrated AI tools into mission-critical workflows should assess their operational resilience and business continuity planning to avoid unintended consequences flowing from AI concentration risk.
