US Appeals Court Orders Review of Pentagon’s DJI “Military Company” Designation

SZ DJI Technology Co. Ltd. has secured a partial procedural victory in the U.S. Court of Appeals for the D.C. Circuit, which ordered a lower court to review classified evidence behind the drone giant’s “Chinese military company” designation. The ruling keeps the company on the Pentagon’s Section 1260H list while legal challenges continue against mounting federal trade restrictions.

The Blind Spot in the District Court’s Summary Judgment

Federal policy battles often turn on the mechanical application of administrative law. In this case, Circuit Judge Bradley Garcia exposed a glaring flaw in how the judiciary evaluates national security blacklists. Last September, District Judge Paul Friedman granted summary judgment upholding the Department of Defense’s designation of DJI under Section 1260H. However, the appellate panel discovered that Friedman never actually inspected the classified version of the December 2024 report.

Instead, the lower court relied entirely on government filings and external sections of the documentation. According to the unclassified record cited in the appellate opinion, every single word beneath the section heading “DJI Contributes to the Chinese Defense Industrial Base” was completely redacted. The D.C. Circuit panel ruled that this approach violated fundamental administrative law principles requiring courts to judge agency actions strictly on the grounds the agency itself invoked, without rubber-stamping black-box redactions.

Weighing State Subsidies Against Due Process Claims

While the D.C. Circuit threw out the unverified defense-industrial contribution claim, it upheld another pillar of the government’s argument. The appellate panel affirmed that DJI knowingly received 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, involves tangible state support.

Evidence laid out in the Pentagon’s report indicates this recognition carries free cash subsidies ranging from 5 million to 15 million yuan, alongside preferential tax rates on imported equipment and financial backing from state-owned capital funds. DJI’s legal team dismissed these points as a “self-serving assertion by counsel,” but the court rejected that defense.

At the same time, the company’s sheer market dominance worked against its broader constitutional arguments. To successfully claim a due process violation, DJI needed to prove that the Pentagon designation broadly precluded it from doing business in the United States. Citing testimony showing DJI controls roughly 90 percent of the global consumer drone market and nearly 70 percent of the commercial drone sector overall, the panel ruled that lost contracts and state-level bans “fall well short” of that high legal bar.

Parallel Fronts in the U.S. Regulatory War

The remand sends the case back to District Judge Paul Friedman, who must now examine the classified record to determine whether it genuinely supports the government’s core contribution finding. The panel left it entirely up to the lower court judge to decide whether DJI’s lawyers will gain any access to that classified material.

Complicating matters further, the Pentagon published an updated Section 1260H list in early June while the appeal was actively pending. This newer iteration introduced fresh justifications for DJI’s blacklisting, including a “Single Champion” designation and alleged affiliations with China’s Ministry of Industry and Information Technology and the People’s Armed Police. While the D.C. Circuit panel noted these new rationales raise questions of mootness regarding the January 2025 designation challenge, it allowed the current case to proceed.

As Caixin Global reported, this legal wrangling sits alongside escalating pressure from other federal agencies. The Federal Communications Commission is pursuing parallel measures to systematically block foreign-made drones from the American market on national security grounds. Simultaneously, DJI faces steep tariffs of up to 100 percent on imported drones, while separately fighting the FCC’s restrictions in the Ninth Circuit.

The 30-Second Verdict

DJI remains on the Pentagon’s Section 1260H blacklist for now. However, the D.C. Circuit’s intervention forces the judicial system to look past unredacted headings and actually review classified intelligence. Even if DJI wins on remand, it must still contend with newly minted June 2024 NDAA justifications, towering tariffs, and separate FCC regulatory bans.

Photo: caixinglobal.com