A federal appeals on denied Anthropic’s request for a stay in its lawsuit against the Department of Defense.

The DOD officially designated Anthropic a supply chain risk in early March and noted the business threatened national security.

Late last month, a judge in San Francisco federal court granted Anthropic a preliminary injunction in a separate case that bars the Trump administration from enforcing a ban on the apply of Claude.

A federal appeals court in Washington, D.C., on Wednesday denied Anthropic’s request to temporarily block the Department of Defense’s blacklisting of the artificial intelligence business as a lawsuit challenging that sanction plays out.

The ruling comes after a judge in San Francisco federal court late last month, in a separate but related case, granted Anthropic a preliminary injunction that bars the Trump administration from enforcing a ban on the leverage of its Claude model.

“In our view, the equitable balance here cuts in favor of the government,” the appeals court remarked in its decision. “On one side is a relatively contained risk of financial harm to a single private enterprise. On the other side is judicial management of how, and through whom, the Department of War secures vital AI digital systems during an active military conflict. For that reason, we deny Anthropic’s motion for a stay pending review on the merits.”

With the split decisions by the two courts, Anthropic is excluded from DOD contracts but is able to continue working with other government agencies while litigation plays out. Defense contractors will be prohibited from using Claude in their work with the agency, but they can apply it for other cases.

The DOD declared Anthropic a supply chain risk in early March, meaning that adopt of the company’s innovation purportedly threatens U.S. national security. The label requires defense contractors to certify that they don’t apply Anthropic’s Claude AI models in their work with the military.

Anthropic had asked the appeals court to review the Pentagon’s determination and argued that it’s a form of retaliation that’s unconstitutional, arbitrary, capricious and not in accord with procedures required by law, according to a filing. 

In the ruling on Wednesday, the court acknowledged that Anthropic “will likely suffer some degree of irreparable harm absent a stay,” but that the company’s interests “seem primarily financial in nature.” While the business claimed the DOD was standing in the way of its right to free speech, the order stated, “Anthropic does not show that its speech has been chilled during the pendency of this litigation.”

Because of the harm Anthropic is likely to suffer, the appeals court mentioned “substantial expedition is warranted.”

An Anthropic spokesperson noted in a statement after the ruling that the firm is “grateful the court recognized these issues need to be resolved quickly” and that it’s “confident the courts will ultimately agree that these supply chain designations were unlawful.”

“While this case was necessary to protect Anthropic, our customers, and our partners, our focus remains on working productively with the government to ensure all Americans benefit from safe, reliable AI,” Anthropic remarked.

Todd Blanche, the acting U.S. attorney general, called the decision a “resounding victory for military readiness,” in a post on X.

“Military authority and operational control belong to the Commander-in-Chief and Department of War, not a tech company,” Blanche wrote.

The DOD relied on two distinct designations under the U.S. federal court to justify the supply chain risk action, and they have to be challenged in two separate courts.

Anthropic’s suit against the Pentagon in March followed a dramatic couple weeks in Washington D.C., between the Department of Defense and one of the most valuable private companies in the international community.

In a post on X in late February, Defense Secretary Pete Hegseth declared Anthropic a supply chain risk, and the DOD soon notified the firm of the official determination via a letter. Anthropic is the first American business to be given the designation, which has historically been reserved for foreign adversaries.

Shortly before Hegseth’s post, President Donald Trump wrote a Truth Social post ordering federal agencies to “immediately cease” all utilize of Anthropic’s tech. He mentioned there would be a six-month phase-out period for agencies like the DOD.

The Trump administration’s actions surprised many officials in Washington, where Anthropic’s digital systems had become embedded in numerous agencies. The enterprise was the first to deploy its models across the DOD’s classified networks, and it was championed for its ability to integrate with existing Defense contractors like Palantir. 

Anthropic signed a $200 million contract with the Pentagon in July, but as the organization began negotiating Claude’s deployment on the DOD’s GenAI.mil AI platform in September, talks stalled.

The DOD wanted Anthropic to grant the Pentagon unfettered access to its models across all lawful purposes, while Anthropic wanted assurance that its innovation would not be used for fully autonomous weapons or domestic mass surveillance. 

The two failed to reach an agreement, pushing the dispute to court.

— CNBC’s Dan Mangan contributed to this report. This also touches on aspects of dividends.

WATCH: Anthropic wins preliminary injunction in fight over Pentagon blacklisting