By Jody Godoy and Karen Freifeld
Aug 14 (Reuters) - A U.S. appeals court on Friday ordered a lower court to reconsider whether China-based DJI, the world's largest drone maker, should be removed from a Pentagon list of companies allegedly supporting Beijing's military.
The U.S. Court of Appeals for the District of Columbia Circuit ruled that the lower court erred by relying only on the unclassified record in concluding that the company contributes to the Chinese defense industrial base.
DJI is one of
a growing number of Chinese companies challenging their placement on the Pentagon's list of Chinese military companies. The list bars the Defense Department from contracting with designated companies, and a broader ban on buying their products via third parties takes effect in 2027.
"There is...no publicly stated rationale for why the Secretary believes DJI contributes to the Chinese defense industrial base," the appeals court said. "On remand, the district court may examine the classified record and determine whether to uphold the Secretary’s determination .
A spokesperson for DJI did not immediately respond to a request for comment. The drone maker has said it was "neither owned nor controlled by the Chinese military."
A spokesperson for the Defense Department said they do not comment on ongoing litigation.
U.S. District Judge Paul Friedman in Washington last year rejected a bid by DJI to be taken off the Pentagon's list of Chinese military companies, instead granting summary judgment against the Chinese firm.
LOST BUSINESS DEALS
In its lawsuit, DJI said the Defense Department’s addition of the company to the list was "unlawful and misguided." It said it has "lost business deals, been stigmatized as a national security threat, and been banned from contracting with multiple federal government agencies."
The appeals court rejected DJI's arguments that it was denied due process, that the unclassified record lacked evidence that DJI received assistance from the government through efforts initiated by the Chinese military industrial planning apparatus, and that the department failed to explain why it treated DJI differently from companies it believes are similarly situated.
However, the court found merit in DJI's fourth argument — that the unclassified record did not support the conclusion that the company contributes to the Chinese defense industrial base.
Earlier this month, another judge granted a preliminary injunction barring the department from including Chinese biotechnology company WuXi AppTec on the list. The judge said the government lacked evidence to justify the decision.
In June, the Pentagon expanded its blacklist to 188 companies, reflecting concern that China's military could tap that country's private sector for advancements, amid geopolitical tensions between Beijing and Washington.
Other businesses added to the list include e-commerce company Alibaba (9988.HK), which sued in June seeking removal.
The Trump administration now calls the Department of Defense the Department of War, but officially changing the name requires action by Congress.
(Reporting by Jody Godoy in New York; Editing by Chizu Nomiyama and Sanjeev Miglani)
