American institutions and entities will be hurt the most if any sort of ban is imposed on DJI in the United States.
In the political season, it's a good thing to trot out and say, hey, we're tough on China.
The U .S. inflation is already very high.
So if sanctions or, let's say, tariffs are put into DJI drones, it's only going to negatively affect the inflation and also increase the national debt.
For Chinese companies, they should probably challenge these designations when they come about.
I think they should be aware of the risks, that this is one of the risks of the U .S.
market. The chat lounge unpacks views and opinions on hot issues in a more casual way.
It's a battle that must be fought.
The world's largest drone maker has taken the U .S.
Defense Department to court.
Shenzhen -based DJI says the Pentagon's blacklisting of the company as a national security threat to the U .S.
is stigmatization, and it has caused financial losses and damage to its reputation.
So what are DJI's chances of winning?
What chain effects will it cause if the Chinese company loses the case?
And what implications does DJI's experience have for other companies entering the U .S.
market? Welcome to the chat lounge.
I'm Tuyen joining me to discuss DJI's lawsuit against the U .S.
Defense Department, ARD.
Andy Mock, senior research fellow at the Center for China and Globalization.
Dr. Edward Lehman, the founder and managing director of China -based law firm Lehman Li and Xu.
Dr. Li Leun, an assistant professor of economics, School of Economics, Peking University, and Dr.
Ryan Mitchell, an associate professor of law, the Chinese University of Hong Kong.
A warm welcome to the chat gentlemen.
So first let's look at the company which is based in China's leading innovation hub Shenzhen.
And Ryan, since you're based in neighboring Hong Kong and it's your first time on the show, shall we start with you please?
Sure. Yeah, so again, thank you very much.
I'm really happy to join the conversation.
Thank you for joining.
And we know DJI is the world's number one drone maker.
Can you give us some further idea about the company you think would be helpful for our listeners to better understand the situation?
Well, you know, I'm not an expert on this particular industry.
However, as just a layperson with respect to the drone industry, I've already been aware of the prominence of DJI as really the leading maker of consumer drone technology and of its importance for all sorts of uses of drones that are beneficial for the public.
So with search and rescue operations, with various other types of activities where drones are used for purposes that really are in the public interest.
Then Andy, do you have any extra information for us?
Sure, I'm happy to share a little bit.
I mean, I do follow startup companies and emerging technologies in China.
So maybe I can talk about it a little bit from that perspective.
So DJI or Dajiang Innovation, in some sense, is the classic American success story.
So it was founded by a young man named Frank Wang or Wang Kao is his Chinese name, and he started it in his dorm room.
So this is not unlike the story of Michael Dell, who started selling computers out of his dorm room and, of course, built a multibillion industry leading company.
And I think Frank Wang's journey is very, very similar to this, in that he was passionate about aviation, attended the Hong Kong University of Science and Technology, and as a class project built, well, started with the flight control system, that eventually became one of these consumer drones or UAVs
that became the basis of what is now DJI.
So I think it's a little bit ironic and a little bit sad, frankly, that this company is being vilified by the United States government or certain arms of the US government for doing what couldn't be anything more All -American than launching a incredibly successful transformative business.
I would add a little bit to what Ryan said.
He made, I think, a fantastic intro of what DJI does, and emergency response, of course, is one very important part of it, but also agriculture and filmmaking.
And, you know, in the filmmaking area as well, I think they've really transformed what is possible and have been widely recognized and acclaimed for doing this.
Right. And thanks for that.
And Dr. Li, and from a business perspective, what do you have for us?
So in terms of the total market for the commercial drone market, I think it's like over $30 billion industry.
And according to many sources, for example, tech review report from MIT, it says DJI contributes over 90 percent of that market.
So it's definitely the number one drone maker in the commercial drone market.
Besides that, I think, as the previous guests have said, DJI is founded in a dorm room.
And also, I think part of its success comes from its innovation.
For example, it employs over 14000 people and from that 14000, around 25 percent is dedicated to R &D.
So its success is definitely coming from its heavy investment in research and development sector.
Right. And Edward, to your knowledge, is there any evidence linking the drone maker with the Chinese military as the U .S.
Defense Department claims?
Well, I mean, if you look at it from a corporate standpoint, I mean, there has been funding by governmental funds.
The question is, you know, investment funds.
And apparently, depending on who you ask, it accounts for less than one percent.
I mean, if you take the classic and everybody likes to do this, started in the dorm room.
I mean, Lenovo, as I recall, I think our law firm started next door at Beijing University next to Lenovo, which was in the same building.
So I mean, this happens not only in America, but also in China, and they wind up taking over IBM.
But there is an argument.
If there's a direct connection, I mean, that it's necessarily controlled by the Chinese government.
It's difficult to say if you want to look at it objectively, but less than one percent does not sound alarming.
There are a bunch of rules with regards to privacy and information and data that, you know, that the Chinese government puts on information.
And then there's also the question as to whether that applies to drones or doesn't apply to drones and whether there's governmental influence with that type of thing.
But but they've raised about it was one billion dollars in funds in preparation for an Envision IPO back in 2018.
Like I said, there were funds that were coming in from state owned enterprises, but they weren't necessarily the military per se.
So I think that, you know, they're right to bring this to court.
And that's the reason why we have in the United States and due process.
We have a system and we have a system that can be overcome if evidence can be got or garnered from from the American government.
So I think I mean, they're in a tough spot.
The person who brought this was an Obama appointee.
I'm not sure what the political motivation is behind it.
But it's really hard to say at this point in time.
But it can be overcome.
Yes, there are some fingerprints that the state can be involved with regards to China.
But that doesn't necessarily mean that it's, quote unquote, run by the state.
And so I think they have a valid chance to overturn something.
And it's happened with other companies from China.
They have demilitarized or not said that they're CMC related, but it all depends on the fact.
Right. Under that logic, a lot of companies can be named as a military related and it also suits American companies.
Right. After we have a brief introduction, we now have a rough idea about the whole situation that you said you are not aware of what's the political motivation behind this.
But is there any other motivation that you can think of?
Like, you know, some people suspect that it's another ploy to get them to sultan American company.
Has that sound to you?
Yeah, I mean, well, you're seeing that now with Doyin and with certainly with that TikTok.
And they're right. Exactly.
And so, you know, they're saying that, I mean, it's a very unusual situation.
And as previous guests have said, I mean, we've got, depending on who you believe, you know, between 90 percent plus or 70 percent as well.
That's how much they have in the market.
You've got to serve a whole bunch of things going on here, an antitrust situation, perhaps, where you're controlling a certain segment of the market, which is something that's new.
When you look at Doyin, which kind of created what they're doing themselves or TikTok, they've created something that didn't exist before.
With DJI, an argument can be said that it doesn't really exist and that there is some applicability to, of course, I mean, it has to do with the military.
Of course, it has to do with what Andy Mock had said earlier, you know, making a better call Saul or making these different kinds of well -known feature films and television programs, you know, less expensive to produce.
And perhaps more interesting, I would say as well, an argument can be said.
But the situation that DJI is in is that there's no real other competitor.
I mean, there are some U .S.
drone makers and this could be perfect.
And they are in the United States and they've set up in a bunch of different jurisdictions as well.
And it might be an opportunity to have this be taken over by the United States government.
I mean, it's not entirely clear.
What has happened is that the United States government has been very slow to respond.
And this is I think that there have been negotiations and negotiations broke down.
There was lack of information that was provided to Paul Weiss, which is the legal counsel for DJI.
And they filed some FOIA applications, which is freedom of information to be able to obtain information as to what were the grounds for them not being approved or being put on this list.
And we're trying to find it.
And, you know, I'm not saying that there is a conspiracy, but I mean, all governments kind of work in a very slow and methodic manner.
They're a monopoly as a result.
They can move at their own pace.
So they were forced to basically turn over this information as to what the agenda is.
It's anybody's guess, but it has to do with applications that could be both in fire and safety and personal safety to the military.
And so that's why this thing is super sensitive.
The Chat Lounge. The Chat Lounge unpack views and opinions on hot issues in a more casual way.
All right. And Dr. Li, what's your guess or I should say an analysis of this?
Why has the Pentagon insisted DJI is the national security threat to the U .S.?
I mean, one of the reason is that as we have already seen, for example, in the real successful assassination of Thomas Leder, we've seen that drones are playing an increasingly important role in modern warfare.
So DJI being the largest maker of commercial drones globally, I think right now at this moment, of course, it has become a very sensitive topic.
And also in terms of being investigated or being listed on the Chinese military company list from the Pentagon, I think it's of course it has a lot of concerns based on U .S.
national security and so on.
But in terms of Professor Li Man's point, DJI submitted a de -listing petition to the Department of Defense back in July 2023, but it received no response.
So it basically waited 16 months to basically try to engage with the DOD to understand the rationale behind why it designated DJI as a Chinese military company, but there's no progress.
And then prior to the lawsuit, the DJI's legal team also sent letters to Pentagon requesting removal, so there's no response.
So that's why DJI kind of decided to file the lawsuit.
So I totally understand that government has its process and things are not moving very fast in terms of the legislative procedures.
But waiting a whole year is, I think, in my opinion, pretty long for the company's operations.
So I think, from my personal analysis, I think it definitely gave me the sense of political motivated action for sanctions toward a Chinese company.
Right. And you talked about the timeline of this whole thing.
Actually, DJI has faced many restrictions imposed by the U .S.
government over the past few years.
Apart from being placed on the so -called Chinese military company or CMC list in 2022, it was sanctioned by the Pentagon back in 2017 and put on an export exclusion list by the U .S.
Department of Commerce in 2020 and included in an investment exclusion list by the U .S.
Treasury Department in 2021.
So, Ryan, why do you think DJI didn't file a lawsuit earlier, and why did it just file it against the Defense Department instead of other departments like the Commerce Department or the Treasury?
Well, you know, I think that's a really good question.
With regards to the strategic aspects here, I think perhaps they did sort of deliberately look towards this Department of Defense designation as maybe being something that would be relatively easier to challenge.
And I think this is informed by the previous example of Xiaomi being able to get an injunction to stay the application of that designation in 2021.
And I think that precedent really probably has inspired DJI's strategy at the moment.
So, with regards to the differences with other designations or sanctions that are being imposed via Treasury, there's a very long track record of, you know, about 50 years at this point of those being very, very difficult to challenge in the courts.
So, the relatively newer Department of Defense designation system, I think, is perhaps a little bit more vulnerable to these attempts to kind of push back.
Right. And Andy, what's your interpretation then?
Well, you know, I think that I would certainly leave the legal aspect to this to people that are far more knowledgeable about this.
But I do want to say that, you know, I think it's pretty clear that, you know, the motivation for this is political at a superficial level, you know, what I would call China derangement syndrome, which we know that despite how polarized the U .S.
is politically, both parties are united in seeing China as a threat.
So, I think that DJI is only the latest target.
You know, we've seen Huawei, ZTE before, other Chinese companies, TikTok, of course.
So, I think that's understandable.
And to add a little bit to what Professor Li said, and like most of these attempts to stop China's rise, there is a grain of truth to this.
So, we've seen drones turn into true dual use technology, not just in Israel, but perhaps more importantly, in the Ukrainian conflict, where it's even sometimes described as a so -called revolution in military affairs, meaning that it is transforming in a profound way how wars are fought.
So, for the U .S. military, the Pentagon, the Department of Defense, whatever you want to call this entity, to say that there is a military threat.
I think certainly is not entirely unjustified, but I think it overlooks the reality and the nuance that DJI is a civilian, consumer -facing company whose products can and have been weaponized.
And perhaps in some ways, it's not different from 3D printing, where people are able to make, I think they're called ghost guns, you know, where you can use a 3D printer to make a gun, that there is the problem here.
So, I think Ed Lehman makes a great point in that this is not black and white.
It's a complex, somewhat ambiguous issue, and we have to see, will the American judicial system be a neutral referee, or will it also become politicized?
Right, when it involves politics, it could get more complicated.
And Dr. Lee and me – Yeah, just to – sorry to interrupt, but just to pipe in on the two -year delay, I mean, I can just tell you what the mindset is, in my opinion, based on analogy of other things that I've been involved in, that what happens is – I mean, DJI, in my opinion, they hope to resolve this issue
through a dialogue in negotiation with the U .S.
authorities, because of exactly what Annie Mock was talking about, because of what Ryan said.
All of this hopefully can be done in a quote -unquote back room.
I mean, the idea of a lobbyist, I mean, this came under the Grant Administration in the Willard Hotel, which is near to the Capitol, and they would – interested people would, you know, sit in the lobby, and they would grab the legislators, and they would say, hey, I want to talk about this, that, or the other
thing. That was in the 1870s.
So these lobbyists are negotiating for two years.
When you actually throw it in the Court of Claims, which is what it – in the Federal Court of Claims, which is what you've got here, you start to have to be a little bit more transparent with regards to the data and the information, the stuff we've been just talking about.
Is this, who owns what?
This becomes evidence that you have to submit as part of DJI.
We can speculate based on looking at different articles, but they're going to have to, under penalty of perjury, have to put this stuff forward, what their connection is.
And there probably was a hesitancy, I would imagine, to doing that, and to have to unpack what – who owns their company and how it's all broken down, because that's a part of a legal action.
And then obviously, as we often say in the law business, is that if you want to make a small fortune, you have to start out with a big fortune, and then get involved in litigation.
So legal action is inherently costly, and it's super time -consuming.
So one or two years is not a big amount of time when you consider how long these cases drag on.
And it certainly requires a certain amount of financial resources to hire – and certainly DJI has that, but it takes years to finalize a final resolution and it creates prolonged uncertainty.
And I can tell you one thing that, you know, you don't want things to go to litigation.
You want to find some kind of mediated settlement if it's at all possible, because anything can happen.
As we've seen with, you know, the cases against Mr.
Trump, but the forum against whatever the case is, there were 34 indictments.
There were, you know, whatever.
There were all kinds of things that are still happening to this day.
So it shows you you want to try to – as a lawyer, you'd like to manage these things rather than let it go into a lawsuit and then have to have all this information that's out there, and which can be unpleasant for future endeavors for the company and for the administration as well.
Yeah, I understand that.
But, you know, DJI says it has caused a lot of, you know, financial losses to it.
It should have done this, you know, earlier.
It's just a normal, you know, mindset.
Andy, you're about to say something?
Oh, sorry. I'll just quickly add on to what Ed said that in my days working in the technology industry in the U .S., I remember a joke that IP lawyers would have is that patents are like hand grenades.
You never know the kill zone.
And I think that perhaps lawsuits are like this as well, which may have made DJI hesitant in that you never know how things will turn out.
This has been the chat lounge.
When we come back, find out who may suffer if DJI loses the lawsuit.
Stay with us. Welcome back to the chat lounge.
We continue our chat on Chinese drone maker DJI's lawsuit against the U .S.
Defense Department.
And the question goes to Dr.
Lee. DJI says it has caused a lot of business losses to it during this period.
So how much damage do you estimate it has suffered?
So, I mean, of course, these legal cases is going to hinder the sales of DJI drones, especially in North America and potentially in Europe.
But, I mean, it's pretty hard to give accurate estimate of how much this is going to affect their business.
Sure. Yeah. But I mean, if we look at the total number of commercial drones, for example, I think the most accurate figure I can find in 2024 is around eight million units.
And of that eight million, around three million is sold in China, and U .S.
accounts for around 40 percent of total sales in drones.
So if in the worst case scenario, if DJI is unable to sell any drones in the U .S., then unfortunately has to lose around 30 or 40 percent of their market share in the area.
And that is a very severe loss.
So unlike, for example, EVs, which are currently expanding into European or North American market, DJI has already established a pretty large market share in the U .S.
So the damage to its business or profits is going to be massive.
Right. And we'll talk a little bit more about that later on in the show.
But back to this lawsuit in its 56 -page suit DJI states, it's neither owned nor controlled by the military, and the drones themselves are not designed for military purposes.
And it also asserts the Pentagon failed to provide a clear rationale, like Dr.
Lee mentioned before, for labeling it as a military affiliate until the company threatened the legal action in September last year.
When the Pentagon finally presented its justification, DJI contended, it was riddled with inaccuracies.
I'm not sure how many of you have read the 56 -page complaint, but, Ryan, what's your evaluation of DJI's case or its complaint?
So, you know, based on what I've seen, I think it does look like similar to the Xiaomi case, there was a very sort of, you know, scattershot approach that's being used by Department of Defense to essentially kind of take the position that being involved in any kind of business transaction with probably
any Chinese government entity, but at the very least, any military -related entity of any kind is enough to say that you're affiliated with the Chinese military, and that you should then be placed upon this list.
So, you know, again, that would cover a really huge range of companies that do not necessarily have anything directly to do with the military, except perhaps for, you know, some amount of business transactions, but not necessarily direct control.
So that affiliated standard, I think, is really far too broad.
And I think that's what the court was responding to in the earlier Xiaomi case.
And so it seems that here there's a similarly strong argument that's being made.
And then what's the Chinese company or DJI's most effective argument in your opinion?
Well, I think it is probably that there is no rational basis for this conclusion, or that the Department of Defense has not actually acted in a non -arbitrary way in making that designation.
Right. Ed, do you share similar observation?
I'm reminded of Stalin's chief of security in what he said, his quote, you know, show me the man and I'll give you the crime.
I mean, as far as the United States government is concerned, I mean, they can unpack this in any which way they want.
I mean, I think that what was brought up previously by Ryan was that, you know, and maybe articulated when you're back in North America, the approach is that everything is run by the Chinese government.
I mean, even if you look at CGTN, I mean, they're saying that each person who's working with CGTN, I don't know if pressing companies included would be somehow an arm of the Chinese government because of the way that it's set up.
But that's the way Congress looks at it.
That's the way that, you know, certain regulatory agencies look at it.
And that's what we get in the 56 page report.
I mean, I too was difficult.
I've downloaded and I took a look at it.
Is it fraught with inaccuracies similar to what the Xiaomi was?
The answer is yes, because whoever is putting together the research doesn't really understand the nuances between, again, an investment fund that might be backed by the state in some way, shape or form.
I mean, Tommasik is kind of a public private, for example, from Singapore, is a public private enterprise which deals with the so -called Singapore state that is making decisions on what they're going to do with private investment.
So there's arguments that can be had either way.
I think that what you have as a legal practitioner rather than somebody who's just sort of teaching about it sometimes, which is great too.
We need that as well.
What we find is that the outcome and the predictability with how the court cases are adjudicated are sometimes they come in with a preconceived notion about how they would like this thing to turn out.
And then they do their best to try to find facts to bolster up those.
I'm not saying it's necessarily happening here.
And like Brian had pointed out in Xiaomi and in other cases besides Xiaomi, they've been taken off the CMC list.
Remember that what's very interesting about this is that there aren't a whole bunch of alternatives.
The U .S. military would like to use this and, you know, the safety services, the fire services and first responders would really like to use this because they've got a great product.
But at the same time, they're looking to get some kind of level of control.
It would appear to me of DJI with regards to what they're doing, say, with TikTok and Douyin, where they can have control.
And I think that everyone thinks everything's a pipeline that goes back to the CPC.
And that's not really the case for those of us who lived here and live here and deal with the government.
Many people on Capitol Hill certainly look at it as black and white.
You're affiliated with the Chinese government and we're not going to have anything to do with it.
And it's also in the political season, it's a good thing to trot out and say, hey, we're tough on China.
You know, that's that's helpful.
So maybe that's a part of the element of it as well.
But do you see any strong argument on the U .S.
side? I understand you went through this whole document.
I do. I mean, I think that they if you look at it from what I understand, and this is all, you know, third party documents.
So they're not all necessarily verified.
And then when you look at media reports again, everyone's got their own angle.
But if you look at it, less than one percent of it has been funded by an investment company to investment companies that have the state connected to the Chinese state government.
And so I think that that would be their way of saying this is an independent company.
It happens to have military application.
I understand that it happens to be, you know, it started in Hong Kong in a dorm room, but then it was, you know, it emigrated across the border to Shenzhen and it's providing a necessary service.
So I think that there's an argument and there really is not another competitor.
Let's put it all in perspective.
I mean, Boeing is the largest military contractor in the United States, and they are active in China and they do sell to China.
So, I mean, you know, there is a way around this and they they realize China is making great strides in there.
And Boeing does a lot more than just make aircraft.
They certainly are involved in military issues that are going, you know, product that's going to Ukraine, product that's going to Israel or could be going to Israel or is going.
And so I do think that's the reason why I think in my mind, from a practical standpoint, it took them two years to bring this litigation.
They were trying to find some solution and it looked like the solution wasn't forthcoming.
It could have been the politics.
But I do think that they can overcome.
And it's not because there's a great love or a great appreciation for DJI or the Chinese government.
I think that it's a necessity that the U .S.
government has to find a way forward where they can make this thing work for them.
Because in this modern day and age, you really need this as much as as anything, which is really interesting because it's not like it's an old rust belt industry that we've had around forever or Boeing.
It's been around for quite a long time or the defense industry or the American military complex, which has been around for a long time.
This is a new technology that is useful in a wide range of things, including militaries.
Like you said, when things are politicized, it's really difficult to predict how it will develop.
But what would you say are the most unfavorable factors that may prevent DJI from winning this lawsuit politics?
Yeah, I think so. I mean, I look I think it's ignorance, it's politics.
I mean, let's look at recently, if you want to draw an analogy to the to the strike that was occurring on the East Coast with the folks who deal with the cargo handlers.
I mean, this is a perfect example in that the union was they were saying, hey, we don't want to initiate, we don't want to have technology that would take away these workers jobs.
And there's a great deal of longshoremen or these people who deal with cargo.
And so they're saying we don't want the technology because we want to employ people.
It doesn't make any sense.
I mean, to go forward, they're going to have to utilize this technology.
I mean, there were elevator operators that used to work in elevators and that pretty much doesn't exist any longer except for some swanky hotels, I guess.
But there was a shifting in that we're going to see a shifting, probably with the self driving cars with regards to what I think is the biggest employer or drivers in the United States and in North America.
So with regards to DJI, this is the best technology.
I mean, arguably, I'm not an expert, but arguably it is.
And they're going to have to come up with some kind of solution that isn't going to be a court case because governments are pretty bad at enforcing stuff.
And courts are have a very difficult time outside of their courtroom trying to enforce that.
It just becomes multiple litigations which become unwieldy as far as enforcement is concerned.
So I think that they're going to have to find a build a separate piece with DJI and figure out how they're going to work separately together to be able to accomplish their goals and not do it through litigation.
That only polarizes.
That's why I think they got their hands full.
But I mean, am I optimistic that something can be had?
The answer is yes because the technology needs to it needs to serve a purpose.
And Ryan, your take here, please.
Yeah, I mean, I fully agree with Ed's comments.
And I think the one thing I would add is I wonder if the political factors here maybe do go both ways because I get the sense that perhaps some of these Department of Defense designations are not necessarily really well thought out and targeted at these individual companies.
And with a very strong sort of intent to sort of take on that particular corporation, some of it might potentially be sort of just optics, given that there have been these public calls from Republican senators and others trying to sort of take the administration to task for not using the Chinese military
companies list. So I think there were some criticisms on that score as part of the sort of broader political battles over foreign policy in the US.
And so to a certain extent, I think some of these designations by DOD might just be intended to make it seem like they are taking action.
That would then suggest if that is the case with any of these particular designations.
I would suggest that or would actually explain some of the behavior that we've seen, such as when you get these preliminary injunctions, then just dropping the designation.
Right. You're saying that there is a chance, a good chance, actually, for the guy to win?
Yeah. Well, I mean, I again, I think it is definitely it is a matter where there's the legal battle and then there is the political context.
So I think that, you know, even from the government's perspective, even from the DOD's perspective, there is not necessarily a willingness to drag this out in litigation on their side.
And I think that all that we've said so far about the nature of the company and the really limited extent of its actual military connections, if any, also speaks to this.
You know, the DOD, I think, does not necessarily want to be involved in the sort of full on attempt to litigate this issue.
So, you know, I think it is entirely possible that their response, for example, if there's an order, a preliminary order by the court that would stay, you know, kind of block the application of the designation temporarily, and I think it might be the case that then the political factors take over and they
start doing cost benefit analysis and they say, do we really want to insist on this with respect to this particular company or do we want to just let the matter drop and go after another target?
But I understand the U .S.
government has actually gotten a nace in its pocket, if it will, for situations like this called a state secrets privilege.
When someone at the, you know, Secretary of Defense level signs a filing for the court indicating evidence in the case is highly classified and its introduction in court would damage national security, the judges will almost always dismiss the lawsuit.
So is that true? Well, it certainly is the case that in some challenges in the past to sanctions, there has been this method that has been used of invoking state secrets to block orders, potential orders by the court to produce certain information such as these kind of deliberations over a particular
decision. But I'm not sure to what extent that would apply here.
I mean, I think that all of these sorts of arguments that we're talking about at the moment are really at the sort of earliest phase of the trial.
So this is before we're really getting to any of the decisions that would reach a final conclusion.
So I don't think that that particular move would necessarily be too helpful for DOD in, you know, at this stage, given that what the court should in theory be taking into consideration is, should we just be temporarily blocking this designation because of all the harm that it has on the reputation of the company,
because of the harm to its business interests, etc.
And, you know, even if there are state secrets involved, then that does not tell you that you need to immediately allow the company to be designated.
That would, I think, require some sort of much stronger showing that there's an immediate security threat of some kind, which there really does not seem to be.
The Chat Lounge. The Chat Lounge unpacks views and opinions on hot issues in a more casual way.
And I want to ask the same question to our other two guests, Andy and Dr.
Lee. I know you're not legal experts, but from your perspective, do you see any unfavorable factors of preventing DJI from winning this case?
Andy, please. Well, I'll respond to what Ed said about his Stalin quote with an American one.
So many Americans will say that any decent prosecutor could indict a ham sandwich.
So I think if the government gets it in its mind, however error ridden the current document might be, they can certainly make a powerful case against DJI.
So that's my first point.
But I think that whatever happens legally actually may not matter all that much, because while there are competitors, American competitors to DJI, but the issue is that they're much more expensive and much less capable.
So I think many sectors of American society, police departments, fire stations, most importantly, depend on DJI drones.
So whatever is decided in the courts may in practice be subverted.
And I'll give you a quick example.
The company that used to be known as Raytheon, a major defense contractor, now known as RTX, has said that they now think about this.
This is a major American defense contractor, says that they cannot decouple from China.
So I think what this tells us is that however powerful the legal arguments the U .S.
government could muster, and even if they win for whatever reason, what might happen practically on the ground is some sort of workaround.
Because I think many American entities are still so reliant on DJI as they are on many, many other things from pharmaceuticals to TikTok to defense component, military equipment components.
So I think this is maybe where the action is in addition to this, I think, very important legal case.
But we should also look at what is happening or could happen on the ground.
Right. Thanks. And Dr.
Lee? Yeah. So as you said, I'm not a legal expert, but I just want to come to this point from like a common ethical point of view.
So I think one thing I found really kind of missing from our previous discussion is that, you know, the device or apparatus that can be used in military operation does not mean the company that manufactured the device is associated to that nation's military.
For example, like we've seen before that suicide bombers sometimes attach bombs to cars and then drive the car into a target.
But we don't see anyone suing the car manufacturer for that.
So that is one of the factors that I found really absurd.
And second, I think DJI back in 2022 announced that it's going to temporarily suspend sale of its drones to Russia and Ukraine.
So I think that also provides some legal evidence that it's not affiliated to a military or it's not a military company because I found it really hard to believe if it's Lockheed Martin or Boeing, it's going to hesitate at that key moment to say, you know, I'm going to temporarily suspend all my sales
to the war zone. And finally, I think, you know, as Andy also mentioned, there's a dilemma between the case to sue or the case to list DJI of the Chinese military company and the vast demand of using DJI drones.
You know, a lot of US Department, for example, the police department, fire department, or even including the Forest Service weather service work for agricultural purposes.
So, I mean, right now the US inflation is already very high.
So if sanctions or let's say terrorists are put into DJI drones, it's only going to negatively affect the inflation and also increase the national debt.
So overall, but I mean, back to the legal cases, I'm not a legal expert.
And also, I think the US court system is becoming gradually more politicized.
So I don't know how the court decision is going to go.
But either way, if the DJI loses, I think it's going to have some mixed effects to the US economy.
Right. Talking about the impact of the DJI loses, do you see as the biggest victim or sufferer, if it will, if DJI loses this case?
Yes. So, I mean, of course, DJI is going to suffer a financial loss.
There's going to be a lot of repercussions.
But I mean, one thing, especially related to the TikTok experience, is that a win or lose of the litigation between that and the total ban of sales of DJI drones in America.
There's a long way between the two.
So it could be that the US government is limiting the sales of DJI drones in certain areas, in certain departments, but not entirely.
For example, you can't sell any DJI drones on Amazon, for example.
So the loss or the financial strain is going to be gradual.
But probably I think there's going to be more implications in terms of the national relations between China and the US.
And also in terms of DJI's entire global strategy, whether it's going to invest more in terms of exporting its drones to North America and Europe.
So it's definitely going to adjust its operation purposes and strategies.
You talked about DJI's suspension of its selling to Russia and Ukraine.
It reminds me of some suggestion by some online users that DJI should stay.
Because the Pentagon may use DJI drones for military purposes, it will not sell them to the Defense Department and its subordinate units.
Do you think it may happen?
What's your evaluation of such a suggestion?
Yeah, I don't know, I think, as I said, for example, if someone purchased a remote control robot or a remote control toy and attach a bomb to it and use it in Battlefield, can you say the company that makes a toy is associated to the military?
I think no. So in terms of DJI selling its product as a commercial product, as a toy, as something that can help you take better pictures or to help the agricultural purposes, fine.
I don't think DJI has the power to not sell to the Pentagon because as long as it's open to the commercial market, anyone can buy it and then convert it into something that can be used in Battlefield.
I don't know how feasible that advice is.
Then Andy, what's your expectation of the chain effects if DJI loses?
And, you know, when it comes to DJI itself, the US military or other organizations like US police forces and the global drone industry, Andy?
Well, I think that American institutions and entities will be hurt the most if any sort of ban is imposed on DJI in the United States.
So again, we have to look at the three main industries, agriculture, filmmaking, emergency response.
And here, lives could be lost.
You know, if there's people lost in the wilderness, if fire departments, police stations cannot use capable, cost -effective drones, lives are at risk.
We see perhaps a cultural business impact on the film industry, certainly in the agricultural sector as well.
So I think, again, like any of these actions against Chinese companies, whether that's Huawei or TikTok, the ultimate loser are Americans.
But would it help promote the sales of US domestically made drones?
Like, you know, I know there is this company called Skydeal, right?
It also produces drones, right?
Sure. But I think here, again, we can see this play out in a number of industries that for reasons I will take too long to go into here.
China has developed an ecosystem where they deliver lower cost, higher quality and increasingly more technologically advanced products.
Quick example with electric vehicles, Jim Farley, the CEO of Ford, had a Xiaomi, I think it's an SU -7 shipped back to the US.
He's been driving it for six months and said he would never give it up.
So this is, I think, an example.
And there's many of them that it's going to be very hard for a number of reasons for American businesses to compete when it comes to cost, when it comes to quality, and again, when it increasingly comes to advanced technology.
Right. Then do you expect the Chinese government to respond with countermeasures if DJI cannot win this case?
I wouldn't necessarily if it loses the case, the Chinese government will respond.
But certainly I think the Chinese government has shown pragmatism, as well as very finely calibrated responses to these kinds of issues.
So I think if DJI were to suffer some sort of tangible loss, I would not be surprised if the Chinese government responded with some sort of reciprocal, highly calibrated response.
Right. Then to the implications for other companies, Ed and Ryan, I think they may need your legal advice here.
What are the implications of DJI's experience for other Chinese companies as dozens of Chinese tech firms face similar situations in the US right now?
Ed, would you go first, please?
Sure. Yeah, I think that I mean, what we've seen in the past, like I said, with Xiaomi, it was a similar example where they came out, they had this sort of, let's call it a shotgun blast from the American authorities as far as what the allegations were.
It was full of inaccuracies similar to what we have here.
And what they do is a lot of this is bang and then it ends with a whimper.
And so I think that DJI or anyone else in this space that is facing CMC type of sanctions under this rule, this 1237, I mean, which is relatively new.
It comes from 1999, that they're able to combat it.
I mean, even when we've seen cases like Huawei, where that was a little bit of a different case, but that was on the Department of Commerce, where Huawei was on an entity list restricting US companies from doing business and they needed another license.
That got sorted out, ZTE was banned, then from buying US components, they got a hefty fine and that was somehow worked out.
I'm not saying it was all right, but if we look at examples in the past, Xiaomi, which has been talked about over and over again, actually was able to beat that list.
And then there's other companies that are involved in this space.
What they don't have right now is concrete evidence, which draws a straight line to Chinese military and DJI in my opinion, as Ryan had said earlier, I mean, this is early days, we don't have discovery, we've got an initial filing of documentation.
There's different approaches from different lawyers as to how to proceed, which is let's not put anything in these things, make them very threadbare, and then prove it up under evidence.
And then there's this approach, which is filling full of inaccuracies and having to walk it back.
So it really depends on the legal strategy here.
But the point is, I think the Chinese companies should be intrepid, they should go forward as best they can.
And there's a good chance that that'll work out okay.
Do they? Ryan, for tips or whatever, a suggestion here?
Yeah, I'd agree. I mean, you know, I think that with regards to these Department of Defense designations, you know, they're really in the process of deciding how they are going to run this program.
And, you know, even with the designation, there's no immediate legal effect, there are effects that are sort of for this particular, you know, listing, there are effects that are already set that will be kind of rolling out over the next few years.
And one thing that they really do not want, I think, in terms of the way that they're running this program is to have more judicial decisions and opinions on motions, like they had in Xiaomi, where they get this language that there was a designation through a deeply flawed process, quote, unquote, or other
sort of negative language of that nature.
So I think that, to a certain extent, although in the sanctions space in general, the government tends to really have, you know, be very unilateral and to overpower a lot of the challenges that are out there.
They do have their own concerns.
And so I think that, especially with regards to a program like this, that is, you know, obviously so politicized.
Part of that politicization also makes it very sensitive and makes them maybe a little bit more vulnerable to critique.
So I would say for Chinese companies, they should probably challenge these designations when they come about, and I think they should, you know, be aware of the risks, that this is one of the risks of the US market, but that there will potentially be some actually effective ways to resist them.
And yeah, from the government perspective, again, I think that they probably are pretty concerned, even if they were to win the case, that along the way, there could be, you know, all sorts of negative assessments of their reasoning and also their effects on the companies and their effects on the US
consumer. Right, Dr.
Li, with all these going on, do you think it's a good time for, you know, Chinese companies to enter or further their investment in the US market right now?
Or what's your suggestion?
Yeah, I think overall, I think for Chinese tech firms definitely still, you know, go ahead and expand their business in the United States, in Europe, in, you know, Southeast Asia, in Africa.
Because when our technology, when Chinese companies are developing the advantage in their cost structure, in their, you know, varieties, in their, you know, product features, of course, I think it's to the consumer's benefit that the product can be introduced to a wider range of the market.
So I don't think this case, whether, you know, which way it's going to go, is potentially a lesson for Chinese companies for, you know, something to mind about, because as company owners, you have to expand your business to a wider market.
So I don't think this is going to have that much of a, you know, broad impact to the mindset of, you know, company leaders and CEOs.
Fair enough. Andy? I think the time is on China's side in that as China's technological lead expands, more and more American consumers are going to be demanding Chinese products, and the American political position is ultimately untenable.
Okay, Ed, you were about to say something just now.
Yeah, and I'll keep it brief.
Part of the problem here could have been why was 2022 and then all of a sudden now we're 2024 and then litigation is occurring.
Part of it is cultural.
When you look at, and this is my perspective only, and I'll just say when you look at Chinese companies, whether they're DJI or they're different very large ones, a lot of times it's down to one person or one personality.
I also think that's making this calling the decision.
It's that, although Tim Cook is the head of Apple, I don't know that he's necessarily making all the legal decisions and everything on his own.
I think that being proactive rather than reactive and pushing it in the direction that the Chinese companies want it to go and not just leaving it up to the one person who happens to be the main mover and shaker within a Chinese company, they can give some latitude to general counsel, which they don't
necessarily see in Chinese companies all the time, but at least with those dealing with the United States, there is due process.
I would try to get it settled if you can beforehand, but I think that you really have to be proactive with a legal plan into market entry because this is inevitable.
Unfortunately, we have more lawyers than any other country in the world and I don't see that changing and they've got to do something.
So this is where maybe some takeaways can be had because if they had pushed this thing forward, then there would be less losses probably for them.
I think that they will eventually be successful.
It's hard to say. They'll find a way.
There'll be a compromise.
Nobody will be super happy, but it'll be better than what it is today under the current circumstances.
Right. Thanks for the reminder.
I think I always go back to this point when we discuss topics like this.
Thank you, Ed. And we'll see how it develops and maybe we can have another session when all settle down.
With that, we wrap up our chat for this session.
Many thanks to Dr. Edward Lehman, founder and managing director of China -based law firm Lehman Li and Xi, and Imak, a senior research fellow at the Center for China and Globalization.
Dr. Leland, an assistant professor of economics, School of Economics, Peking University, and Dr.
Ryan Mitchell, associate professor of law, Chinese University of Hong Kong, for sharing your insights and expertise with us.
The show is available on all major podcast platforms.
If you have any comments, please email radio at cgtn .com.
I too and thank you for being with us.
We'll have more chat at the chat lounge next week.
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