Background
Section 1260H requires the Secretary of Defense to identify and annually publish a list of Chinese military companies operating in the United States. Inclusion carries contracting and funding restrictions and may cause reputational harm. The Secretary repeatedly listed drone manufacturer SZ DJI Technology Co., Ltd. and its subsidiary SZ DJI Baiwang Technology Co., Ltd. The January 2025 designation rested on a partially redacted report concluding that DJI was a military-civil fusion contributor to the Chinese defense industrial base.
DJI challenged that designation under the Fifth Amendment and the Administrative Procedure Act. It argued that the lack of advance notice violated due process, the record did not support the finding that DJI received assistance through China’s military industrial planning apparatus, the Secretary failed to explain the treatment of allegedly similar companies, and the record did not support the finding that DJI contributed to China’s defense industrial base. The district court granted summary judgment to the government without examining the unredacted report. While the appeal was pending, the Secretary issued a June 2026 list that again included DJI and supplied additional rationales.
The Court’s Holding
The D.C. Circuit held that the appeal was not moot on the present record because the January 2025 designation might retain distinct reputational consequences and DJI might again face a designation involving the same asserted defects. The court left open whether the parties could establish mootness in further proceedings. On the merits, it rejected DJI’s due-process claim because DJI had not shown that the designation broadly precluded it from pursuing its business and had forfeited a separate automatic-exclusion theory.
The court also held that substantial evidence supported the Secretary’s inference that DJI received benefits through its National Enterprise Technology Center recognition, and it rejected DJI’s disparate-treatment argument. But it reversed as to the finding that DJI contributed to the Chinese defense industrial base. Because the public report redacted the agency’s entire explanation for that finding, the district court violated the Chenery principle by relying on litigation arguments and other record material to supply a rationale. The D.C. Circuit remanded, explaining that the district court may examine the classified record and may consider whether DJI or its counsel should receive some form of access.
Key Takeaways
- A government designation does not establish a stigma-plus deprivation under DJI’s chosen theory merely because it causes lost customers or contracting opportunities; DJI remained a global market leader and was not broadly precluded from its business.
- The substantial-evidence standard permitted the Secretary to infer from DJI’s technology-center recognition, available policy benefits, and history of receiving subsidies that DJI was receiving government assistance.
- A reviewing court cannot uphold an agency finding by supplying a rationale absent from the agency’s publicly disclosed explanation; on remand, the district court may examine the classified record and address possible access to it.
Why It Matters
The decision reinforces Chenery’s constraint in national-security litigation: even when an agency’s reasoning is classified, a court may not replace that reasoning with post hoc arguments advanced by government lawyers. At the same time, the opinion preserves substantial deference to agency factfinding and sets a demanding standard for companies asserting that reputational and commercial harm constitutes a protected liberty interest.
The remand does not predetermine how the contribution finding should be resolved or require the district court to review the classified material. It permits further consideration of that record, possible access arrangements, and whether later developments render the dispute moot.