Appeals Court Orders Review of DJI's 'Chinese Military Company' Designation

Appeals Court Ruling

The U.S. Court of Appeals for the D.C. Circuit partially reversed a previous ruling concerning drone manufacturer DJI's inclusion on the Pentagon's Section 1260H list of "Chinese military companies." The appeals court found that a district judge had upheld the government's central claim—that DJI contributes to China's defense industrial base—without examining the classified evidence supporting this assertion.

Lack of Public Rationale

Circuit Judge Bradley Garcia noted that there is "no publicly stated rationale" for the Defense Department's belief that DJI contributes to the Chinese defense industrial base. The unclassified version of the Pentagon's December 2024 designation report, which explains the designation, redacts all information under the heading "DJI Contributes to the Chinese Defense Industrial Base."

Judicial Review Mandated

District Judge Paul Friedman, who initially ruled against DJI, had not reviewed the classified version of the evidence. The appeals panel stated that this approach violated the rule requiring courts to judge agency actions based solely on the grounds invoked by the agency itself. The case will now return to the lower court for a review of the classified evidence, though DJI remains on the list during this process.

Government Assistance and Market Position

The appeals panel affirmed the finding that DJI knowingly receives assistance from the Chinese government through its 2021 recognition as a National Enterprise Technology Center. This status, granted by China's National Development and Reform Commission, includes benefits such as cash subsidies, preferential tax rates, and financial support from state-owned capital funds. DJI's lawyers argued the company never received such assistance, but the court dismissed this as a "self-serving assertion." DJI's market position, holding 90% of the drone market, also factored into the court's decision against its due process claim.