DJI won a partial reversal of its Pentagon blacklist defeat on Friday, when the U.S. Court of Appeals for the D.C. Circuit ruled that a federal judge never should have upheld the government’s core claim, that DJI contributes to China’s defense industrial base, without reading the classified evidence behind it. In the public record, every word of that justification is redacted except the section heading.

The August 14 decision keeps DJI on the Defense Department’s Section 1260H list of “Chinese military companies” for now. The three-judge panel rejected DJI’s other three arguments, including its due process claim, and sent the case back to District Judge Paul Friedman, who upheld the designation last September. DroneXL has tracked this lawsuit through that district court loss, the October appeal, and February’s oral argument in Washington.

The Court Rejected Three Arguments And Handed DJI The Fourth

The D.C. Circuit panel of Chief Judge Srinivasan and Judges Wilkins and Garcia turned away DJI’s due process, evidence, and unequal treatment claims. It agreed only that the district court improperly upheld the Pentagon’s defense industrial base finding without examining the classified record supporting it.

The due process claim failed on the numbers. To show a protected interest, DJI had to prove the designation broadly precluded it from doing business. The panel pointed to congressional testimony that DJI holds 90 percent of the global consumer drone market and noted the company remained the market leader through years of designation. Lost contracts and state-level bans, the court held, fall well short of being put out of business.

DJI also lost its challenge to the finding that it knowingly receives Chinese government assistance. The Pentagon’s public evidence rests on DJI’s 2021 recognition as a National Enterprise Technology Center by China’s National Development and Reform Commission, a status that comes with tax breaks, cash subsidies, and support from state-owned capital funds. The court found it reasonable to infer DJI takes benefits it is eligible for. A third argument, that the Pentagon never explained why Volkswagen, Nissan, and Nokia Bell escaped listing despite holding the same Chinese status, went nowhere: the Secretary of Defense never took a position on those companies at all, so there was no inconsistency to explain. That leaves the fourth argument, the one that revived the case Judge Friedman rejected in his 49-page September opinion.

Every Word Of The Pentagon’s Core Justification Is Redacted

The Secretary of Defense’s December 2024 report contains a section titled “DJI Contributes to the Chinese Defense Industrial Base.” In the unclassified version, everything below that heading is blacked out. Judge Friedman upheld the finding anyway, relying on government lawyers’ arguments instead of the report itself.

That shortcut violated a bedrock rule of administrative law, the Chenery principle, which limits courts to the reasons an agency actually gave. Judge Bradley Garcia’s opinion put the problem plainly: “There is, in other words, no publicly stated rationale” for the Pentagon’s belief that DJI contributes to China’s defense industrial base. Government attorneys pointed to evidence elsewhere in the record, and the panel called that exactly the kind of after-the-fact argument Chenery prohibits, since no one outside the government knows whether the Secretary relied on any of it.

On remand, Friedman may now examine the classified record in camera and decide whether the finding survives. The panel also left him free to decide whether DJI’s lawyers get some form of access to that record. Classified evidence has become the government’s pattern across every DJI proceeding: the Pentagon cited a classified annex in its FCC filing this spring too.

The June 2026 Relisting Adds Claims Friedman Already Rejected

The Pentagon published a fresh Section 1260H list on June 10, 2026, and DJI is on it with new justifications, among them affiliation with China’s industry ministry, the People’s Armed Police, a “Single Champion” designation, and a military-civil fusion enterprise zone. Two of those claims failed in court last September.

Friedman found no support in the January 2025 record for the assertions that DJI is affiliated with the Ministry of Industry and Information Technology or tied to a military-civil fusion enterprise zone, findings DJI leaned on heavily when it filed this appeal. Both are back on the June list without public explanation. The list also asserts an indirect affiliation with SASAC, the state commission that oversees China’s government-owned enterprises. Whether the Pentagon has new evidence for any of it is unknown; the new list, published in the Federal Register, states conclusions, not proof.

The panel addressed the new list only to confirm the appeal is not moot, reasoning that each annual designation carries its own reputational hit and that DJI could face the same contested rationales again. The stakes are concrete. Listed companies cannot contract with the Defense Department or Homeland Security and lose access to certain Energy Department funds, and Reuters reports a broader prohibition on purchases through third parties takes effect in 2027. The Pentagon declined to comment on the litigation, per the South China Morning Post.

DJI provided DroneXL with its full statement on the ruling, attributed to a company spokesperson:

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.

One precision note on DJI’s framing: the panel did not find the public evidence insufficient. It upheld the Pentagon’s assistance finding on the public record; what it faulted was the absence of any publicly stated rationale for the defense industrial base claim. Earlier this month a federal judge blocked the Pentagon from listing biotech firm WuXi AppTec, finding the government lacked evidence for that designation.

DroneXL’s Take

This ruling is not vindication for DJI, and I won’t dress it up as one. It is something more useful: the first decision in this fight that refuses to let the Pentagon’s blacklist rest on evidence nobody outside the government is allowed to see.

Let’s give the government its strongest point. The appeals court upheld the finding that DJI’s NETC status comes with real state money, and DroneXL has criticized Beijing’s subsidy machine as sharply as Washington’s protectionism. That finding stands, and it should. But a subsidized national champion and a military company are different things, and the military label is the one doing all the damage: the state bans, the terminated contracts, the stigma DJI cited in its filings. The only rationale that carries that label is a section heading followed by black ink, and when the district court needed reasons, government lawyers supplied their own. The D.C. Circuit just said courts don’t get to grade a secret with a crib sheet written by counsel.

What sits under that redaction is now the whole case, and nobody outside the government knows what it is. The court itself confirmed no public rationale exists. If the classified record holds specific, serious evidence, Friedman can uphold the designation on remand and DJI’s strongest talking point evaporates. A thin record, on the other hand, would leave the Pentagon defending a military label it rejected putting in writing.

Watch Friedman’s courtroom, case 1:24-cv-02970, for how he handles the classified review and whether DJI’s cleared counsel gets a look. Watch, too, whether DJI amends its complaint to attack the June 2026 list; it amended once before, in March 2025, when a new list dropped mid-case. And keep the tracks straight: even a full delisting here would not reopen the U.S. market, because the FCC Covered List block runs through a separate Ninth Circuit case that DJI’s heavyweight appellate team is fighting on its own clock. The Pentagon has had nearly four years to state its case against DJI in public. On Friday, a court finally noticed it never has.

Sources: U.S. Court of Appeals for the D.C. Circuit, South China Morning Post, Reuters, DJI statement to DroneXL

DroneXL uses automated tools to support research and source retrieval. All reporting and editorial perspectives are by Haye Kesteloo.