DJI scores a win in fight against US ban, appeals court orders fresh review of firm’s ‘Chinese military company’ designation — drone maker will stay on Pentagon list while a judge examines classified evidence for the first time

The U.S. Court of Appeals for the D.C. Circuit on Friday partially reversed a ruling that kept drone maker DJI on the Pentagon’s Section 1260H list of “Chinese military companies,” finding that a district judge upheld the government’s central claim — that DJI contributes to China’s defense industrial base — without reading the classified evidence behind it.

In the unclassified version of the Pentagon’s December 2024 designation report, every word of the section making that claim is redacted except its heading, according to the opinion. The three-judge panel rejected DJI’s other arguments, meaning that the company stays on the list while the case returns to the lower court. “The Court’s finding that the public record contained insufficient evidence is a significant step toward correcting an unjustified designation,” a DJI spokesperson said in a statement provided to Tom’s Hardware.

Circuit Judge Bradley Garcia wrote that there’s “no publicly stated rationale” for the Defense Department’s belief that DJI contributes to the Chinese defense industrial base. The Pentagon’s December 2024 report explaining the designation contains a section titled “DJI Contributes to the Chinese Defense Industrial Base,” but everything below the heading is blacked out in the unclassified record.

District Judge Paul Friedman, who granted summary judgment against DJI last September, never examined the classified version. He relied instead on the government’s court filings and material from other parts of the report, an approach the panel said violated the rule that courts must judge agency action solely on the grounds the agency itself invoked.

The panel affirmed the finding that DJI knowingly receives assistance from the Chinese government through its 2021 recognition as a National Enterprise Technology Center, a status granted by China’s National Development and Reform Commission. Evidence cited in the Pentagon’s report says the status carries free cash subsidies of 5 million to 15 million yuan, preferential tax rates on imported equipment, and financial support from state-owned capital funds. DJI’s lawyers argued the company has never received any assistance through the recognition; the court dismissed that as a “self-serving assertion by counsel.”

DJI’s market position also appears to have counted against it because, to win its due process claim, the company needed to show the designation broadly precluded it from doing business. The panel cited testimony that DJI holds 90% of the global consumer drone market and nearly 70% of the drone sector overall, and ruled that lost contracts and state-level bans “fall well short” of that bar. Friedman can now examine the classified record and decide whether it supports the contribution finding, and the panel left it to him whether DJI’s lawyers get any access to that material.

The Pentagon published a new 1260H list in early June, mid-appeal, with fresh justifications for DJI’s inclusion, among them a “Single Champion” designation and claimed affiliations with China’s Ministry of Industry and Information Technology and the People’s Armed Police.

The judges in this appeal noted the new rationales raised the question of whether DJI’s challenge to the January 2025 designation is moot, but let the case proceed on the current record. Even a win on remand wouldn’t touch the June listing, which rests on different grounds under the 2024 NDAA amendments.

The designation sits alongside tariffs of up to 100% on foreign-made drones and the FCC’s ban on new foreign-made drones, which DJI is separately fighting in the Ninth Circuit.