In Defense of the Drone

Chinese commercial drone manufacturer Da-Jiang Innovations (DJI) on October 18 filed a lawsuit against the U.S. Department of Defense (DOD) in the District Court of Washington, D.C. The company accuses the DOD of damaging its legitimate rights by having placed it on the department’s list of “Chinese military companies” (CMC) in 2021, with the DOD arguing DJI poses potential threats to U.S. national security.

This legal action has garnered global mainstream media attention and is widely interpreted as a concrete manifestation of the competition and countermeasures between China and the U.S. in the technological field.

However, the needs of companies caught up in grand narratives are often quite pragmatic. Founded in 2006 and headquartered in Shenzhen, Guangdong Province, DJI holds over 70 percent of the global market share for civilian and commercial drones. In the 56-page lawsuit, DJI asserts that as a private enterprise, it is neither owned nor controlled by the Chinese military. Furthermore, DJI’s consumer drones, which are akin to remote-controlled aerial cameras powered by rechargeable batteries, vastly differ from military drones, which typically feature large wingspans and are often powered by gasoline or diesel engines.

The company further emphasizes that its data security and privacy measures have been certified by authoritative third parties. However, due to being erroneously designated as a CMC, DJI has suffered ongoing financial and reputational damage. For instance, after the company was labeled a national security threat, some U.S. customers terminated existing contracts and refused to enter new agreements.

U.S. sanctions against DJI first began in 2017, when the DOD prohibited the military from using DJI drones due to so-called data security concerns—even though the company has only ever made products for civilian use. In 2021, the Pentagon placed DJI on its so-called list of CMCs. In September, the U.S. House of Representatives passed an act to ban the sale and operation of future DJI products within the U.S. One New York Times headline captured the sentiment well: A Chinese Firm Is America’s Favorite Drone Maker. Except in Washington.

DJI is unlikely to exit the U.S. market without a fight, especially given that North America accounts for 38 percent of the global drone market. Suing U.S. government agencies has become one of DJI’s self-defense strategies. There are successful precedents for Chinese companies in similar situations. For instance, in January 2021, after being placed on the Pentagon’s blacklist of Chinese military-related companies, Chinese smartphone manufacturer Xiaomi filed a lawsuit against the U.S. departments of defense and treasury. By May of that year, the District Court for the District of Columbia issued a final ruling that removed Xiaomi from the list, officially lifting all restrictions on U.S. investors buying or holding its securities.

Interestingly, a report by The Wall Street Journal on March 5, 2021, revealed that the DOD’s reasoning for blacklisting Xiaomi included the fact that its CEO, Lei Jun, had been honored by the Chinese Government in 2019. This recognition, combined with Xiaomi’s ambitious investments in advanced technologies such as 5G and artificial intelligence, led the Pentagon to believe it had grounds for the designation.

This May, Shanghai-based Hesai Technology, the world’s largest manufacturer of electric vehicle lidar, which is short for “light detector and ranging,” also filed a lawsuit against the Pentagon under circumstances similar to DJI’s. After three months of proceedings, the DOD determined that Hesai did not meet the legal criteria for blacklisting. However, on October 16, the Pentagon unexpectedly placed the company on the blacklist once again.

Chinese companies perceive increasing unfair treatment in the U.S. market, a sentiment widely shared by the Chinese public. Within the broader context of China-U.S. competition, it is more of American hegemonic tendencies than fair competition.

The sanctions on Chinese firms in 5G equipment, electric vehicles and drones inevitably are reminiscent of the 1987 (Japanese) Toshiba incident and the 2013 (French) Alstom case. Washington, in those cases, used its power to stigmatize successful foreign companies, demanding repeated self-certification without evidence and employing tactics to undermine or merge these firms.

Nevertheless, Chinese companies still believe that the U.S., as a nation governed by the rule of law, offers legal avenues to protect their rights.

For DJI, its lawsuit is not only about preserving the company’s reputation and development rights, but also about making a stand for fair competition and market integrity. Global investors are closely watching how the U.S., a country that purports to champion fairness, justice and the rule of law, will decide in this case.