DJI sues US Department of Defense, claims financial harm from wrongful blacklisting

DJI, the world’s leading drone manufacturer, is taking the US Department of Defense (DoD) to court, seeking to remove itself from a list of “Chinese Military Companies.” The Shenzhen-based company, which holds a substantial share of the US drone market, argues that the Pentagon’s designation is both inaccurate and harmful, causing financial losses and damage to its reputation.

In a lawsuit filed in Washington on Friday, DJI claims it is neither owned nor controlled by the Chinese military. As a DJI spokesperson tells DroneDJ:

On October 18, DJI filed a lawsuit to challenge the Department of Defense’s erroneous designation of the company as a ‘Chinese Military Company.’ After attempting to engage with the DoD for more than sixteen months, DJI determined it had no alternative other than to seek relief in federal court.  DJI is not owned or controlled by the Chinese military, and the DoD itself acknowledges that DJI makes consumer and commercial drones, not military drones.

DJI further asserts that before the lawsuit, the drone maker sought to engage with the DoD for more than 16 months through outside counsel. It was not until DJI informed the DoD of its intention to file a lawsuit that the DoD finally provided DJI with the report purporting to justify DJI’s designation.  Despite DJI pointing out the numerous deficiencies in the report, the DoD declined to remove the designation. As such, DJI had no option available other than seeking relief in federal court.

Since being placed on the list in 2022, DJI has faced significant challenges. According to the lawsuit, the designation has led to the loss of business deals and a ban on contracting with US federal agencies. DJI employees have reportedly faced harassment and stigma as a result of the label. The company also claims that US and international customers have terminated contracts or refused to enter into new agreements due to concerns over the military affiliation tag.

This lawsuit is part of a broader tension between the United States and Chinese technology firms. DJI’s blacklisting by the DoD is one of several US actions targeting Chinese companies, particularly those perceived as threats to national security. The company’s challenges in the US stretch back to 2017, when the US Army urged its units to stop using DJI drones. In subsequent years, other federal agencies, including the US Interior Department, grounded fleets of DJI drones over concerns about potential data risks.

Related: DJI drone ban is crippling US government services: GAO

Further complicating matters, the US Department of Commerce added DJI to its Entity List in 2020, citing allegations that the company’s technology had been used in surveillance activities within China, including the monitoring of Uyghurs in Xinjiang. The following year, the US Treasury labeled DJI as a “Non-SDN Chinese Military Industrial Complex Company,” amplifying concerns about the company’s ties to Chinese authorities.

DJI, however, disputes these accusations, maintaining that it has no involvement in human rights abuses. The company argues that it merely sells drones, which may be used for a range of purposes that are beyond its control. DJI highlights its role in aiding first responders in the United States and asserts that independent audits, including those by US government agencies, have found no security risks associated with its products.

Nonetheless, the US Customs and Border Protection (CBP) is now blocking the import of some DJI drones (including the just-released Air 3S), citing the Uyghur Forced Labor Prevention Act. DJI, meanwhile, insists that no forced labor is involved in its production processes and is pushing for a resolution to the customs hold-up, which it describes as a misunderstanding.

Despite these setbacks, the company is quick to emphasize that the US government has not imposed any restrictions preventing consumers from purchasing its drones or individual pilots from flying them within the United States.

The company’s lawsuit comes at a time when Congress is considering a complete ban on new DJI drones in the US, citing security risks. While the House of Representatives has approved the ban as part of the National Defense Authorization Act, the Senate has yet to include it in its version of the bill. If the ban were to pass, it could prevent new DJI drones from entering the market, though existing users would still be able to fly the drones they already own.

DJI lawsuit: A fight for fair treatment

In its defense, DJI acknowledges that two Chinese state-owned funds have made small investments in the company. It claims that one of these funds, the Shanghai Free Trade Zone Equity Fund, holds less than 1% of DJI’s shares and almost no voting power. The second fund, the Chengtong Fund, reportedly ended its investment earlier in 2023. DJI asserts that its ownership remains firmly in the hands of four individuals, who collectively control 99% of the company and own 87% of its shares.

DJI’s legal action against the Pentagon mirrors similar cases by other Chinese firms, including the recent removal and swift relisting of lidar manufacturer Hesai Group from the same military list. This ongoing struggle between Chinese companies and the US government reflects broader geopolitical tensions between the two nations.

While the outcome of DJI’s lawsuit remains uncertain, the stakes are high for the drone manufacturer. Winning the case could allow it to regain access to crucial markets and shed the stigma associated with being viewed as a national security threat. However, if the designation stands, DJI may continue to face hurdles in one of its largest markets, further straining ties between the world’s two largest economies.

The US Department of Defense has yet to comment on the DJI lawsuit.

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