In a major legal development with broad implications for the commercial drone industry, a federal appeals court ruled Friday that the U.S. Department of Defense (DoD) failed to provide adequate public justification for designating DJI as a “Chinese military company.”
In a decision authored by Circuit Judge Garcia, a three-judge panel for the U.S. Court of Appeals for the District of Columbia Circuit affirmed parts of a lower court ruling while reversing a crucial element. The appellate court sent the case back to the U.S. District Court for the District of Columbia to examine the Pentagon’s redacted, classified evidence.
The ruling marks a key procedural win for the Shenzhen-based drone giant in its ongoing fight to remove itself from the Pentagon’s Section 1260H list, which is a statutory blacklist that prohibits designated companies from securing DOD contracts and imposes severe reputational damage.
The arguments: Redacted evidence and the Chenery principle
DJI originally sued the Department of Defense in October 2024, arguing that its inclusion on the Pentagon’s annual Section 1260H list violated its due process rights and was arbitrary and unsupported by evidence under the Administrative Procedure Act (APA).
While the district court initially granted summary judgment in favor of the Department of Defense based strictly on the public, unclassified record, the D.C. Circuit Court of Appeals found a fundamental flaw in that approach. According to the D.C. Circuit Court of Appeals, the Pentagon had completely redacted its explanation for why DJI supposedly “contributes” to the Chinese defense industrial base.
“There is, in other words, no publicly stated rationale for why the Secretary believes DJI contributes to the Chinese defense industrial base,” Judge Garcia wrote in the opinion.
The appellate panel ruled that the district court violated a core tenet of administrative law called the Chenery principle. This dictates that courts must judge agency actions solely on the grounds explicitly invoked by the agency itself, rather than attempting to construct post-hoc rationales based on general record filings.
Because the district court never actually examined the unredacted, classified report submitted by the DOD, the appeals court sent back the case. That means the district court must now review the classified evidence to evaluate whether the DOD’s designation holds up legally, and from there they can determine whether DJI’s legal counsel can be granted access to any portion of those secret filings.
Ongoing challenges for DJI
While the appellate court ruled in DJI’s favor regarding the redacted evidence, it rejected several of DJI’s other arguments. Among the key events in the court that could pose future challenges for DJI:
- Due Process Claim Dismissed: DJI argued that the Pentagon violated its Fifth Amendment due process rights by placing it on the Section 1260H blacklist without advance notice. The court rejected this, stating that while DJI may have lost some government contracts and state-level business, its global business remains dominant. Because the designation did not “broadly preclude” DJI from pursuing its overall commercial trade, it failed to trigger what are called constitutional “stigma-plus” due process protections.
- National Enterprise Technology Center (NETC) Subsidies Upheld: The court ruled that the Pentagon had “substantial evidence” to infer that DJI knowingly received assistance from the Chinese government. Specifically, the court cited unclassified reports showing that China’s National Development and Reform Commission officially recognized DJI as a “National Enterprise Technology Center” in 2020, making the company eligible for lucrative tax breaks, state subsidies and financial support.
- Selective Enforcement Rejected: The court dismissed DJI’s argument that the Pentagon acted arbitrarily by failing to blacklist other multi-national companies such as Nissan or Nokia Bell.
DJI responds with formal statement
Following the ruling, DJI issued an official statement welcoming the appellate court’s decision to partially reverse the lower court and reopen the evidentiary review:
“DJI welcomes today’s decision by the U.S. Court of Appeals for the D.C. Circuit, which partially reversed the lower court’s ruling and sent the case back for further consideration.
The Court’s finding that the public record contained insufficient evidence is a significant step toward correcting an unjustified designation. The decision reinforces what DJI has consistently maintained: DJI is not a military company. We are a privately held company that has revolutionized the consumer and commercial drone markets, consistently condemned the use of our products in combat, and taken active steps to prevent it. We remain committed to the responsible development of civilian technologies, from drones to handheld imaging products. We look forward to continuing to set the record straight as the case moves forward.”
What happens next?
The case now returns to the District Court for the District of Columbia, where a federal judge will inspect the Pentagon’s classified filings in camera (behind closed doors).
The outcome of that review will determine whether the Pentagon’s secret evidence is sufficient to sustain DJI’s Section 1260H listing. There, the district judge will decide whether DJI’s cleared legal team will be allowed to review those classified files to mount a defense. And that could lead to a decision that could set a critical legal precedent for other foreign tech companies battling federal blacklists.
What the court’s ruling means for drone pilots
If you currently fly a DJI drone for work or for fun nothing changes for your day-to-day operations at the moment.
Because the appeals court sent the case back to a lower court rather than throwing out the blacklist entirely, DJI remains on the Department of Defense’s Section 1260H list for now. That means federal agencies, the military and certain government-funded programs are still barred from purchasing DJI hardware.
However, for the vast majority of commercial Part 107 pilots, local businesses and recreational flyers, your existing gear remains completely legal to fly.
But do realize that the legal battle is far from over. Proposed restrictions from the Federal Communications Commission (FCC) and federal legislative pushback could still impact future hardware imports and equipment authorizations down the line. Whether this lawsuit, the FCC bans or anything else negatively impacting the drone industry, speak up. In fact, there’s a public comment period open through Sept. 2, 2026 regarding the FCC ban. Though not directly related to this appeals court ruling, it all wraps up into ways the government wants to ban DJI drones — and your voice is crucial to preventing that.
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