DJI Wins Partial Victory in US Appeals Court, Faces Reopened Proceedings Over Military Company Designation

On August 18, 2026, the U.S. Court of Appeals for the District of Columbia Circuit issued a judgment partially overturning a lower court ruling in a lawsuit filed by drone giant DJI Technology against its designation by the U.S. Department of Defense as a “Chinese military company.” The court pointed out that the district judge had made a ruling without reviewing classified materials that underpin the government’s central claim that “DJI contributes to the Chinese defense industrial base,” and remanded the case for further proceedings on this issue. While DJI will remain on the list, this marks the first time classified records will be scrutinized in court.

The designation stems from Section 1260H of the National Defense Authorization Act for Fiscal Year 2021. The Department of Defense added DJI to the “Chinese Military Company” list in December 2024. In the non-public version of the designation report, the basis for the claim that DJI contributes to the defense industrial base was entirely redacted. According to the appeals court’s opinion, all text under the heading “DJI Contributes to the Chinese Defense Industrial Base” was blacked out.

Judge Bradly Garcia, leading the three-judge panel, stated in the ruling that “the reasons the Department of Defense believes DJI contributes to the Chinese defense industrial base have not been publicly stated.” District Judge Paul Friedman, who had handled the case, granted summary judgment in favor of the government in September 2025 but did so by relying on other parts of the government’s court filings and reports, never viewing the classified version. The appeals court concluded that this violated the legal principle that an agency’s actions should be judged solely on the rationale it presents.

However, the appeals court rejected three other claims made by DJI. Consequently, DJI will remain on the list. The rejected claims included violations of due process and the argument that the designation severely hinders business operations. Notably, DJI’s market dominance actually worked against its due process argument. Testimony submitted to the court indicated that DJI holds a 90% share of the global consumer drone market and nearly 70% of the overall drone market. The court determined that lost contracts and state-level regulations did not reach the threshold of “substantially” hindering DJI’s business.

One of the designations DJI received also became a point of contention. In 2021, DJI was granted “National Enterprise Technology Center” status by China’s National Development and Reform Commission. According to the Pentagon report, this designation came with cash subsidies of 5–15 million yuan (approximately 100–300 million yen), preferential tax rates on imported equipment, and financial support from state capital funds. DJI’s legal team argued that the company did not actually receive aid through this designation, but the court dismissed this as a “self-serving argument by counsel.” The designation formed part of the basis for the government’s claim that DJI knowingly accepted assistance from the Chinese government.

A DJI spokesperson told Tom’s Hardware, “The court’s determination that there was insufficient evidence in the public record is a crucial step toward rectifying an unwarranted designation.” However, the path to being removed from the list remains long. The case now returns to Judge Friedman, who will for the first time review the classified records to determine whether DJI contributes to the defense industrial base. This decision could directly impact DJI’s business operations in the United States.

This lawsuit underscores the complexities of the legal battlefield in the U.S.-China technology friction. The issue of how far courts can scrutinize government decisions based on classified information affects many tech companies, not just DJI. This case is particularly emblematic given that drone technology sits on the boundary between civilian and military use. While DJI is a global leader in civilian drones, concerns that its technology could be repurposed for military applications remain a national security issue.

Editorial Opinion

In the short term, this ruling is merely a procedural victory for DJI. It did not directly order DJI’s removal from the list but merely sent the case back for further review at the district court level. As long as DJI remains on the list, restrictions on transactions with the U.S. government and exclusion from public procurement will continue. However, the initiation of hearings on classified records is significant, as it means the substance of the government’s justification will undergo legal scrutiny for the first time. Over the next three to six months, depending on the content of the classified materials, both the possibility of overturning DJI’s designation and the possibility of it being further strengthened remain. In the long term, this lawsuit could set a precedent for the U.S. regulatory approach toward foreign technology companies. It raises fundamental questions about the effectiveness of judicial review for government decisions based on classified information, likely spilling over into future regulations for semiconductor and AI companies. In the intersection of technology and security, where to draw the line between disclosure and non-disclosure could change the risk management guidelines for the entire industry. The editorial team will be most focused on how the content of the classified records influences the judgment. If the government’s evidence is concrete and robust, DJI’s designation will likely be maintained, providing grounds for stronger regulations against Chinese tech companies as a whole.

References

• ” 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 ”, by Luke James — Tom’s Hardware, 2026-08-18T15:40:10.000Z (ARR)
• Source URL: https://www.tomshardware.com/tech-industry/appeals-court-orders-fresh-review-of-djis-chinese-military-company-designation