The U.S. Court of Appeals for the D.C. Circuit handed DJI a narrow but notable legal victory on Aug. 14, 2026, ruling that a lower court improperly upheld the Pentagon's central justification for placing the Chinese drone maker on its list of "Chinese military companies" without independently reviewing the classified evidence behind that justification. The decision does not remove DJI from the list, and it does not vindicate the company's broader legal arguments — but it forces the government to show its work, at least to a judge, before the designation can stand.
The ruling was authored by Circuit Judge Bradley Garcia for a three-judge panel that also included Chief Judge Sri Srinivasan and Judge Robert Wilkins. It sends the case back to U.S. District Judge Paul Friedman, who ruled against DJI in September 2025. On remand, Friedman may now examine the classified material underlying the Department of Defense's core finding in camera, rather than relying — as the district court did the first time — on the government's litigation arguments and unrelated sections of the report in place of the agency's own stated rationale.
What the Court Actually Found
At the heart of the case is a Pentagon report dated Dec. 6, 2024, that contains a section titled "DJI Contributes to the Chinese Defense Industrial Base." That section, laying out the government's primary basis for the 1260H designation, is entirely blacked out except for its heading in the public record. Judge Garcia wrote that "there is, in other words, no publicly stated rationale" for the finding — meaning the public had no way to evaluate the reasoning that anchors DJI's placement on the list. The classified, unredacted version of that section was available to the district court — the government filed it ex parte and in camera — but the court chose not to examine it, relying instead on arguments in the government's briefing and on other sections of the report to conclude the finding was supported.
That gap is why the panel remanded rather than ruled outright for either side. The appeals court held that leaning on the government's after-the-fact litigation arguments, instead of the agency's own redacted rationale, violated the basic administrative-law principle that courts must judge agency action by the grounds the agency actually invoked. On remand, Judge Friedman may examine the classified evidence directly — and is free to decide what access, if any, DJI's counsel receives to it — before the designation's core "contributes to the Chinese defense industrial base" finding can be considered properly upheld.
Importantly, the panel did not hand DJI a broader win. The court rejected the company's due-process claims, its argument that it was subject to unequal treatment relative to other companies, and its challenge to the government-assistance finding tied to DJI's recognition as a Chinese "National Enterprise Technology Center." The court likewise found that DJI's market leadership in the drone industry and the existence of state-level bans on its products did not, on their own, establish that the company was being unfairly precluded from doing business.
The Case Background
The litigation traces to DJI's suit against the Department of Defense, docketed in district court as No. 1:24-cv-02970. Judge Friedman ruled against DJI on the merits in September 2025, effectively upholding the company's inclusion on the Section 1260H list — a National Defense Authorization Act provision requiring the Pentagon to annually identify companies it assesses are linked to China's military-civil fusion strategy. DJI appealed, and the D.C. Circuit released its opinion on Aug. 14, 2026.
The stakes for DJI have only grown since the original designation. On June 10, 2026, the Pentagon republished its 1260H list and added new claims against DJI, including alleged affiliation with China's People's Armed Police and ties to a military-civil fusion enterprise zone — allegations layered on top of the original findings now under judicial scrutiny.
How the Two Sides Are Framing It
DJI moved quickly to characterize the ruling as validation. A company spokesperson said the decision "reinforces what DJI has consistently maintained: DJI is not a military company," and called the remand "a significant step towards correcting an unjustified designation." That framing emphasizes the redaction problem the court flagged, while saying less about the parts of the ruling that went against DJI.
The Pentagon, for its part, has offered no public rebuttal. The Department of Defense declined to comment on the ongoing litigation when asked by reporters following the opinion's release.
What Happens Next
DJI remains on the Section 1260H list while the case returns to district court. The practical effect of the remand is procedural rather than immediate: Judge Friedman may now conduct an in camera review of the classified evidence behind DOD's core rationale — the redacted section within the Dec. 6, 2024 report — rather than relying on the government's litigation arguments as a substitute for that rationale, and determine whether the evidence actually supports the finding the Pentagon has publicly defended. There is no set timeline in the public record for when that review will conclude or when a new district court ruling might follow.
For DJI, the ruling buys time and a fresh chance to argue the merits before the same judge who ruled against it in 2025, but it does not change the company's status on the list, its exposure to state-level restrictions, or the newer allegations added in June 2026. For the Pentagon, the opinion is a rebuke on process — a reminder that redacting the reasoning behind a formal designation does not exempt that reasoning from judicial scrutiny — but not a defeat on substance, since the court left DOD's authority to make such designations, and the designation itself, intact for now.
Why It Matters
Section 1260H designations carry real commercial weight: companies on the list face reputational damage, procurement restrictions, and a cascading effect on state and local government bans, even without an accompanying export-control or sanctions action. DJI's case is being closely watched because it tests how much evidentiary transparency the government owes when it places a company on a national-security blacklist using classified justification the company and public cannot see. A ruling that forces even limited judicial review of that classified record — rather than automatic deference to the Pentagon's say-so — sets a precedent relevant to any company facing a similar designation in the future, particularly as military-civil fusion allegations become a more common tool in U.S.-China technology disputes. For the drone industry specifically, the outcome will help determine whether DJI's dominant market position in commercial and public-safety UAS can survive an extended legal and political siege, or whether the redacted evidence, once finally reviewed by a judge, proves sufficient to keep the designation — and the restrictions that follow from it — firmly in place.
