Appeals Court Orders Fresh Review of DJI's 'Chinese Military Company' Status
A U.S. court ruled the government failed to properly review classified evidence used to label the drone giant a military entity.
The U.S. Court of Appeals for the D.C. Circuit has partially reversed a lower court ruling that maintained DJI's designation as a "Chinese military company." The court found that the original decision rested on a procedural failure to properly examine classified evidence.
In its ruling, the appeals court determined that District Judge Paul Friedman violated established rules by relying on court filings rather than the actual classified record to uphold the government's claim that DJI contributes to China's defense industrial base. Consequently, the case has been remanded to the lower court for a fresh review of the classified material. While this represents a procedural victory for the drone manufacturer, DJI remains on the Pentagon's Section 1260H list for the time being.
The Legal Framework
The dispute centers on Section 1260H of the William M. (Mac) Thornberry National Defense Authorization Act for FY2021. This law requires the Secretary of Defense to identify "Chinese military companies" operating within the United States. Once a company is placed on this list, the Department of Defense is restricted from procuring its products. This designation has already had a ripple effect across the U.S., leading several state governments to ban their own agencies from using DJI drones.
Despite the remand on the defense industrial base claim, the appeals court affirmed one key point: DJI knowingly receives assistance from the Chinese government. Specifically, the court noted that DJI's 2021 recognition as a National Enterprise Technology Center supports its designation under the law.
Market Implications
The legal battle comes as DJI maintains a dominant position in the global drone industry. Estimates place the company's share of the global consumer drone market as high as 90%. The company's scale makes the Section 1260H designation particularly impactful, as it effectively locks the world's largest drone maker out of significant U.S. government contracts.
"The Court's finding that the public record contained insufficient evidence is a significant step toward correcting an unjustified designation," a DJI spokesperson stated.
Future Outlook
While the ruling forces the U.S. government to prove its claims using actual evidence rather than redacted reports, the victory may be short-lived. Legal analysts note that a new June listing based on different grounds—such as "Single Champion" status—could potentially render the current legal challenge moot.
Furthermore, this case is only one front in a broader regulatory war. DJI continues to fight separate tariffs of up to 100% and potential bans from the Federal Communications Commission (FCC) in the Ninth Circuit. The outcome of the remanded review will determine if the government can sustain its specific "military company" claim, but the company remains under intense regulatory scrutiny.