Court upholds Department of Defense designation of DJI as a “Chinese Military Company” – a cautionary signal for companies facing or fearing similar national security designations

The US Department of Defense’s (DOD) designation of DJI as a “Chinese Military Company” under the National Defense Authorization Act (NDAA) highlights the expanding US focus on identifying companies viewed as contributing to foreign defense industrial bases. The recent District of Columbia federal court decision upholding that designation underscores both the difficulty, and the potential viability, of challenging such determinations.

For companies, the decision serves as a practical roadmap for mitigating designation risk and, where necessary, mounting a credible challenge. Litigation remains an available tool, but success requires the right factual record and early strategic preparation to overcome the strong deference courts afford to agency national security findings.

The Case: SZ DJI Technology Co., Ltd. v. US Department of Defense

In this case, the DOD had added DJI, the world’s largest civilian drone manufacturer, to its list of “Chinese Military Companies.” That designation, authorized under Section 1260H of the FY 2021 NDAA, identifies companies the US government believes support China’s defense or intelligence sectors. DJI sued, arguing that the DOD’s decision was unlawful and unfair. The company claimed the DOD relied on outdated statutory language, ignored key evidence it had submitted and failed to provide meaningful notice or an opportunity to respond.

The court disagreed. It found that the DOD’s reasoning, while imperfect in parts, was supported by enough evidence to meet the legal standard of review. In particular:

• Use of the Law: The court found that any reliance on an earlier version of Section 1260H did not change the outcome because the key provisions were essentially the same.
• Evidence Considered: The court was satisfied that the DOD had reviewed DJI’s submissions, even if it did not address each item individually; and
• Factual Basis: The court pointed to DJI’s recognition as a National Enterprise Technology Center (NETC) by China’s National Development and Reform Commission (NDRC)—an entity it viewed as part of China’s military-industrial planning system—and noted that DJI’s technology has clear military applications.

Although the court acknowledged that the DOD lacked proof that DJI was indirectly owned by the Chinese Communist Party, it found that point irrelevant. The DOD had a separate and sufficient basis for its decision: DJI’s role in China’s broader military-civil fusion program.

On DJI’s due process claims, the court again sided with the government. It ruled that the harm DJI alleged, damage to reputation and potential loss of business, did not rise to the level of a constitutional violation. Because DJI could still operate and had been given both notice of the reasons for the designation and an opportunity to respond through a delisting petition, the court found that due process was satisfied.

Practical Takeaways for Companies

Companies operating in sectors subject to US national security scrutiny—technology, aerospace, telecommunications, advanced manufacturing and critical infrastructure—should take proactive steps now to reduce the likelihood of being named under Section 1260H or similar authorities and to prepare for potential designation review. Key actions include:

• Strengthened Governance: Ensure compliance frameworks are robust and auditable, especially regarding export controls, investment and end-use restrictions.
• Transparent Ownership and Control: Maintain complete and current ownership documentation demonstrating independence from state or military entities.
• Early Regulatory Engagement: Communicate directly and proactively with US agencies to clarify operations and ownership before issues escalate.
• Build an Evidentiary Record: If designated, compile sworn statements, audits and third-party reports to rebut agency assertions with precision.
• Substantiate Business Harm: Demonstrate through detailed evidence how a designation disrupts business operations, contracts or financing.
• Document Controls on Military Use: Maintain records of compliance steps and enforcement actions to prevent product diversion to military end users; and
• Address the “Stigma-Plus” Element: Show how that the impact of designation effectively forecloses normal business activities or access to markets.

Taken together, these measures position companies both to avoid designation and, if necessary, to contest one effectively.

Key Takeaways

The DJI decision reinforces that while courts grant the DOD broad deference in national security matters, government designations are not immune from challenge. The ruling underscores that the strength of a company’s factual record, its governance, transparency and evidentiary documentation can determine whether judicial review is meaningful or merely procedural.

For companies under investigation or already designated, litigation remains a viable but narrow pathway. Success will depend on demonstrating, with credible and contemporaneous evidence, that the government’s conclusions are unsupported or overreaching. Courts are unlikely to overturn agency findings based on technical or procedural disputes alone; they require a well-developed record that cuts directly against the deference owed to the government’s national security judgments.

The case also highlights the importance of acting early. Companies that proactively clarify ownership and control, maintain transparent documentation and engage constructively with regulators are better positioned both to avoid designation and to mount an effective response if one occurs.

Ultimately, challenges to DOD designations are difficult but not futile. The DJI decision shows that even in an area of broad governmental discretion, outcomes can hinge on the strength of a company’s compliance posture and factual record. A factually grounded, strategically prepared challenge, built on clear evidence of independence, due process engagement and demonstrable business harm remains the best defense against the reputational and operational risks that accompany a national security designation.

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