Drone-Maker Says DOD Confused Common Chinese Names in Adding It to Military Company List

Chinese drone-maker DJI Technology Co. is challenging the Pentagon's designation of the firm as a Chinese military company, saying the agency applied the "wrong legal standard," mixed up individuals "with common Chinese names" and relied on "stale alleged facts and attenuated connections that fall short of demonstrating" the company is connected to the Chinese military (SZ DJI Technology Co. v. U.S., D.D.C. # 24-02970).

DJI's complaint, filed in U.S. District Court for the District of Columbia Oct. 18, comes more than a year after the company was first added to the Pentagon list and after at least two other Chinese companies, Xiaomi Corp. and Luokong Technology Corp., successfully challenged their designations (see 105070015, 2105120047 and 2105240053).

DOD argued that the Chinese Communist Party indirectly owns DJI, which is also on the Commerce Department's Entity List. But the drone-maker argued that the agency applied the wrong legal standard, saying that federal statute allows the designation of a company if it's directly or indirectly owned or controlled by the People's Liberation Army or any other subordinate organization to the CCP Central Military Commission. DJI argued that the People's Liberation Army and the Central Military Commission "are not interchangeable with the CCP itself."

A report produced by DOD about DJI's designation doesn't show that DJI is owned or controlled by the People's Liberation Army or a group subordinate to the Central Military Commission, nor could it, the company said. DJI outlined its ownership structure to the D.C. court, noting that four company executives hold 99% of the firm's voting rights and that none of them is affiliated with Chinese military entities.

The only evidence the report cites relates to minority investments from the Shanghai Free Trade Zone Equity Fund and the Chengtong Fund Management Co., DJI said. The Chengtong fund sold its share of the company in June 2023 and the Shanghai fund owns less than 1% of company shares, the brief said.

The report next found DJI to be a "military-civil fusion contributor" to China's defense industrial base. The statute allows for such a designation to be made under eight categories, and DOD used four of them to make its findings.

Under the first category, DOD alleged that DJI knowingly received assistance from the Chinese government through science and technology efforts opened under the Chinese "military industrial planning apparatus." DOD said DJI satisfies this category through its relationship with the Academy of Military Science and the National University of Defense. For both of these institutions, DOD identified individuals listed on patents filed by the research institutions that also appear on patents filed by DJI.

But DJI said those individuals, while having identical names, are different people. For instance, "Zhang Tao" was listed as an inventor on the Military Science Academy's patent and on DJI patents, though the individuals on the patents are two different people. DJI said the "coincidence is unsurprising given that 'Zhang Tao' is a common Chinese name," adding that having "employees with common Chinese names is not a basis for listing."

DOD also said DJI was affiliated with the Military Science Academy, which used DJI drones to patent a temperature measuring device. The drone-maker said the academy merely bought one of DJI's products and used it to develop its patent. As a result, the agency's logic would also label DJI an "American military company" given that U.S. institutions have bought DJI drones for similar purposes, the brief said.

The second category highlighted DJI's alleged ties to the Chinese Ministry of Industry and Information Technology, noting the drone-maker's work with the ministry in drafting an industry standard for unmanned aircraft systems. DJI said that the agency's "apparent position" -- that helping draft industry standards establishes affiliation with the Chinese ministry -- is "plainly incorrect" and would subject firms like Samsung, Ford, Nokia and Ericsson to designation as a Chinese military company.

The third category centered on DJI's alleged receipt of assistance, direction or guidance from China's State Administration for Science, Technology and Industry for National Defense. DOD said such guidance was received, given that DJI is subject to export restrictions on civilian drones and jointly holds 61 patents with four top Chinese universities. DJI said being subject to export restrictions doesn't equate to receiving assistance, direction or guidance from a government agency, and it doesn't make it a "military-civil fusion contributor."

DJI said DOD has put the company in a "Catch-22: complying with the restrictions would allegedly support its designation as a [Chinese military company], but not complying with the restrictions would lead to the potential misuse of its drones in the Russia-Ukraine conflict.”

The company added: "[I]t would be strange to justify DJI’s designation as a [Chinese military company] on the fact that it adhered to a restriction against the military use of drones."

The final category allows for the designation of entities residing in a military-civil fusion enterprise zone. DOD said DJI meets this criteria because it was planning to build an Innovation Center and Global Technical Support Center in the Xi'an High-Tech Industrial Development Zone, which is allegedly a military-civil fusion enterprise zone. DJI said the Xi'an High-Tech Zone isn't a military-civil fusion enterprise zone, adding that many U.S. and other international companies reside in the zone.

DJI said DOD relied on faulty information in coming to its conclusion, including a witness statement at a 2020 Senate hearing, in which a consultant inaccurately referred to the Xi'an High-Tech Zone as a military-civil fusion enterprise zone. The drone-maker said DOD "makes no effort to verify the accuracy of the witness's claim," adding that the witness "likely conflated one subpart of the zone with the entire Xi’an High Tech Zone.”

The drone-maker alleged that its designation has led to "significant and ongoing financial and reputational harm," noting that U.S. and international buyers have "terminated existing contracts with DJI and refuse to enter new ones." The company's employees "now suffer frequent and pervasive stigmatization," and "have been repeatedly harassed and insulted in public places," the brief said. In addition, many U.S. states have ended their relationship with DJI, which has provided drones to local police and fire departments.

The Pentagon didn't immediately respond to a request for comment.