A narrow ruling with an unusually blunt premise
On August 14, 2026, the U.S. Court of Appeals for the D.C. Circuit handed the Chinese drone maker DJI a partial win in its four-year fight against the Pentagon's "Chinese military company" designation — while leaving DJI on the list. In SZ DJI Technology Co. v. Department of Defense, a unanimous panel (Chief Judge Srinivasan, Judges Wilkins and Garcia) rejected three of DJI's four claims but agreed on the fourth: the district court had no basis to uphold the Secretary of Defense's finding that DJI "contributes to the Chinese defense industrial base," because the entire explanation for that finding — every word except the section heading — was redacted in the record the court actually reviewed. As Judge Garcia wrote, "There is, in other words, no publicly stated rationale for why the Secretary believes DJI contributes to the Chinese defense industrial base."
The case turns on Section 1260H of the FY2021 National Defense Authorization Act, which directs the Secretary of Defense to annually identify and publish Chinese military companies operating in the U.S. Listed firms are barred from Defense and Homeland Security contracts and from certain Department of Energy grants and loans — and, as the court noted, a listing "can be a blow to designated companies' reputations" even absent a direct contracting relationship. DJI, with roughly 90% of the global consumer drone market, has been on the list every year since its first designation in October 2022.
What the court actually held
The panel's reasoning rests on the Chenery principle: courts must judge agency action solely on the grounds the agency actually invoked, not on post-hoc justifications supplied later by lawyers. The district court, reviewing DJI's second challenge, relied only on the unclassified record and never examined the classified version of the Secretary's report — the version containing the Pentagon's actual reasoning. When DOJ tried to defend the finding on appeal by pointing to other unclassified material in the record, the panel called that "exactly the type of post hoc argument the Chenery principle prohibits," since nobody outside the government knows whether the redacted rationale even relies on those facts.
Crucially, the court did not rule that DJI should come off the list, nor that the Pentagon's classified evidence is insufficient. It remanded to Judge Paul Friedman with instructions to examine the classified record in camera — for the first time in this litigation — and decide for himself whether it supports the "contributes" finding. The court also left open whether DJI's counsel may get some form of access to that classified material, a question with real stakes for how adversarial this process becomes.
Steelmanning the Pentagon's position
The government's underlying case for opacity isn't frivolous. Section 1260H exists because Congress concluded that some Chinese firms benefit from state subsidies, technology-transfer mandates, and "military-civil fusion" policies in ways that aren't visible in public financial filings — and that spelling out precisely which intelligence sources revealed those links would tip off Beijing and dry up future reporting. The 2024 amendments to Section 1260H even built a formal mechanism for ex parte, in-camera review of classified material specifically to let courts check the government's work without blowing sources and methods. That's a real and legitimate national-security interest, and the panel's ruling doesn't disturb it — Friedman can still credit the classified evidence on remand.
Why full redaction still isn't defensible
But national-security sensitivity doesn't require redacting literally everything, including the government's own summary conclusion. The Pentagon's report contained a section titled "DJI Contributes to the Chinese Defense Industrial Base" in which every sentence beneath that heading was blacked out — not just the underlying intelligence, but the reasoning connecting it to the statutory standard. A listing that strips a market-leading company of federal contracting eligibility and inflicts real reputational harm, as the court itself acknowledged, needs more than a black box with a label on it, even when the underlying evidence stays classified. Courts routinely handle this tension in FISA, export-control, and OFAC sanctions litigation through the same in-camera mechanism the panel ordered here; DOJ's own 2024 statutory amendment anticipated exactly this scenario. Asking the government to let a judge actually look at the evidence before a company loses its ability to do business with the Pentagon is not a radical due-process demand — it's the floor.
The bigger pattern
This case doesn't exist in isolation. In December 2025, the FCC's Public Safety and Homeland Security Bureau added all foreign-made drones and their critical components — not just DJI's — to its Covered List, following a White House interagency finding that foreign UAS posed "an unacceptable national security risk." Between the FCC's import-authorization freeze and the Pentagon's contracting bar, the U.S. is assembling a fairly comprehensive hardware decoupling regime for drones, built substantially on classified or lightly-explained findings. DJI's June 2026 relisting under the amended statute added new rationales, including a "Single Champion" industrial-policy designation — a sign the government is trying to build a sturdier record rather than relitigate the same redacted paragraph forever.
That's the right instinct, and this ruling should reinforce it rather than being read as a loss for the underlying policy. Proportionate national-security regulation doesn't mean no judicial check on classified fact-finding; it means the check exists but defers appropriately once a court has actually looked. The D.C. Circuit didn't second-guess the Pentagon's judgment about Chinese military-civil fusion — it insisted a federal judge actually read the evidence before endorsing it. That's a modest, correctable, and ultimately strengthening constraint on an increasingly important tool of U.S. tech sovereignty policy.