The U.S. Department of Defense’s Section 1260H List has become considerably more consequential.
Originally established as a statutory mechanism for identifying certain “Chinese military companies” operating directly or indirectly in the United States, the list is now connected to a growing number of procurement, funding, and other regulatory consequences. At the same time, several listed companies have challenged their designations in federal court.
Three decisions issued in August 2026—WuXi AppTec, SZ DJI Technology, and Hesai Technology—are particularly instructive. They do not establish that Section 1260H designations are easily overturned. But they do show that the Department of Defense (“DoD”) remains subject to meaningful judicial review, even where national-security considerations are involved.
For companies already on the list—and for companies concerned that they may be designated in the future—the emerging case law provides an increasingly useful roadmap.
Key Takeaways
Section 1260H designations are reviewable. Courts have required DoD to accurately read the record, explain its reasoning, and comply with applicable procedural requirements.
The administrative record is critical. Factual errors, unsupported inferences, and inadequate explanations can create viable Administrative Procedure Act (“APA”) claims.
Litigation is not an automatic path to delisting. Successful challenges may result in an injunction, remand, or additional process rather than immediate removal from the list.
Why Section 1260H Litigation Matters More Today
Section 1260H of the FY2021 National Defense Authorization Act requires DoD to identify and publish a list of companies meeting the statutory definition of a “Chinese military company” and operating directly or indirectly in the United States. Congress subsequently expanded both the substantive designation criteria and the consequences associated with being listed.[1]
Importantly, the Section 1260H List should not be confused with an OFAC sanctions list.
Listing does not, by itself, generally prohibit all U.S. persons from engaging in transactions with the designated company, nor does Section 1260H itself create a general securities-trading prohibition. The practical consequences instead arise from Section 1260H together with other statutes that use the list as a regulatory trigger.
Those consequences are increasingly significant.
As of June 30, 2026, DoD generally may not enter into, renew, or extend certain procurement contracts directly with Section 1260H-listed entities or entities subject to their control. Additional restrictions affecting indirect procurement are scheduled to apply beginning June 30, 2027. Other statutes have also linked Section 1260H status to particular funding, procurement, lobbying, biotechnology, and sector-specific restrictions.[2]
The commercial impact may extend further than the statutory prohibitions themselves.
Customers, financial institutions, suppliers, government contractors, investors, and compliance screening providers may independently reassess relationships with a listed company. As the recent cases demonstrate, those downstream effects can become relevant both commercially and in litigation.
WuXi AppTec: Courts Will Examine Whether the Record Actually Says What the Agency Says It Says
The August 7, 2026 decision in WuXi AppTec Co. v. U.S. Department of Defense is perhaps the clearest recent example of substantive APA review of a Section 1260H designation.
DoD's June 2026 designation stated that WuXi AppTec was indirectly owned by the State-Owned Assets Supervision and Administration Commission (“SASAC”) and indirectly affiliated with the State Administration of Science, Technology and Industry for National Defense (“SASTIND”) and the People's Liberation Army.
WuXi challenged the designation and sought a preliminary injunction.
The district court concluded that WuXi had demonstrated a likelihood of success on its claim that DoD's decision was arbitrary and capricious. What makes the opinion particularly useful for companies is the nature of the problems identified by the court.
For the ownership rationale, DoD relied in part on information indicating that WuXi shares represented 5.32% of an investment fund's net asset value. The Department treated this as evidence that the fund owned 5.32% of WuXi.
The court found those to be fundamentally different propositions: the percentage of a fund invested in a company is not the same thing as the percentage of the company owned by the fund.
The court identified similar problems with DoD's reliance on scientific studies involving universities and hospitals. Records identifying a WuXi subsidiary as a third-party laboratory were characterized in the designation analysis as evidence that WuXi had conducted studies “in partnership with” certain institutions. The court concluded that the cited material did not establish the relationship in the manner described by DoD.[3]
The broader point is important.
Courts may afford substantial deference to executive-branch assessments involving national security. But deference is not the same as an exemption from reasoned decision-making.
An agency may draw reasonable inferences from a record. It may not, however, materially misread the evidence and then ask the court to reconstruct a different justification after litigation begins.
The court therefore preliminarily enjoined DoD from enforcing or giving effect to WuXi's designation while the litigation proceeds.
That ruling remains preliminary rather than a final decision on the merits. Nevertheless, it demonstrates that factual precision can matter considerably in a Section 1260H challenge.
DJI: Deference Remains Significant—but the Agency Must Defend Its Own Reasoning
One week later, the D.C. Circuit issued its decision in SZ DJI Technology Co. v. Department of Defense.
DJI challenged its designation on several grounds, including due process, evidentiary sufficiency, inconsistent treatment, and the adequacy of DoD's explanation.
The result was mixed.
The court rejected DJI's argument that there was insufficient evidence supporting DoD's conclusion that DJI had received certain government assistance through a National Enterprise Technology Center designation. The court emphasized the deferential substantial-evidence standard and concluded that DoD could reasonably draw certain inferences from the information in the record.
DJI also argued that other companies appeared to have similar characteristics but had not been designated. The court was not persuaded. It declined to require DoD, before listing one company, to investigate every potentially comparable company and explain why each was treated differently.
Those aspects of the opinion are important because they illustrate the limits of judicial review. A court generally will not substitute its own policy judgment for that of the agency merely because another interpretation of the evidence is possible.
But DJI succeeded on another significant issue.
DoD had concluded that DJI “contributes” to the Chinese defense industrial base, but the substantive explanation for that finding was redacted from the unclassified record. The district court had upheld the determination using other evidence and arguments appearing elsewhere in the record.
The D.C. Circuit held that this approach violated a basic principle of administrative law: agency action generally must be judged on the grounds invoked by the agency itself, rather than a justification constructed later by government lawyers or the reviewing court.
The case was therefore remanded for further proceedings, including potential examination of the classified record.[4]
DJI consequently provides two lessons that should be considered together.
The evidentiary threshold under deferential APA review may not be particularly high. But the agency still must make the relevant determination itself and provide a legally sufficient basis for that determination. Courts cannot simply repair gaps in an agency's reasoning after the fact.
Hesai: A Significant Due Process Decision
Four days after DJI, the D.C. Circuit issued another important Section 1260H ruling in Hesai Technology Co. v. Department of Defense.
Hesai had originally been listed in January 2024. After Hesai challenged that designation, DoD rescinded it in October 2024 and immediately redesignated the company based on a revised rationale.
The district court upheld the redesignation, but the D.C. Circuit reversed on due-process grounds.
The critical issue was what lawyers often describe as “stigma plus.”
Being identified publicly as a “Chinese military company” can carry reputational consequences. Reputation alone does not necessarily create a constitutionally protected liberty interest. But the court found an additional element: federal law automatically made listed companies ineligible for certain government contracting and financial opportunities.
That change in legal status, combined with reputational injury, was sufficient to trigger due-process protections.
The court then held that, absent an adequate justification for postponing process, Hesai should have received notice of the unclassified materials on which DoD proposed to rely and a meaningful opportunity to respond before the redesignation became final.[5]
This is potentially one of the most important holdings to emerge from Section 1260H litigation.
It suggests that companies facing designation may have procedural rights before the government finalizes its action, at least where the circumstances satisfy the constitutional framework identified by the court.
But there is an important qualification.
The D.C. Circuit did not order Hesai immediately removed from the list. Instead, it remanded the matter so that DoD could provide the required process. The court also declined to vacate the challenged 2024 designation while the procedural deficiency was addressed.
That distinction matters.
Winning a procedural challenge does not necessarily mean that the government cannot reach the same substantive conclusion after following the required procedure.
Why DJI and Hesai Reached Different Due Process Results
At first glance, DJI and Hesai may appear inconsistent because the same court decided the cases within days of each other.
They are not.
The difference largely arose from the way the claims were litigated.
DJI relied on the theory that the designation had so severely affected its commercial activities that it broadly prevented the company from pursuing its chosen business. The court concluded that DJI's evidence did not meet that demanding standard, noting that the company remained a significant market participant despite losing some customers and government opportunities.
Hesai relied on a different theory: designation automatically excluded it from categories of government contracts and financial assistance that otherwise would have been legally available.
The D.C. Circuit held that the formal exclusion itself supplied the necessary change in legal status.
The lesson for future litigants is therefore procedural as well as substantive:
legal arguments must be identified and preserved carefully.
A potentially strong theory cannot necessarily be recovered on appeal if it was not properly presented.
The Administrative Record Is Becoming the Center of the Case
Taken together, the recent decisions suggest that Section 1260H litigation will frequently turn on the administrative record.
That record may contain information concerning:
ownership and beneficial ownership;
government or state-owned investment;
participation in government industrial or technology programs;
research projects involving universities or other institutions;
government subsidies and incentives;
the location of facilities;
participation in designated industrial or development zones;
relationships with government agencies or state-owned entities; and
activities that DoD considers relevant to the statutory designation criteria.
The practical significance is substantial.
Companies concerned about potential designation should not wait until litigation begins to determine what publicly available information exists about them.
A useful internal review may identify, for example, an outdated corporate record, mistranslated corporate relationship, nominal shareholder, discontinued government designation, historic research collaboration, or investment-fund relationship that could be misunderstood when viewed without context.
That does not mean every such relationship creates Section 1260H exposure.
It means companies should understand how their own factual record might look to an outside reviewer applying the statutory criteria.
The Reconsideration Process Should Not Be Ignored
The June 2026 Section 1260H notice expressly provides an administrative reconsideration mechanism.
A listed entity may submit supporting evidence explaining why an insufficient basis exists for the designation or why the circumstances supporting the listing no longer apply.[6]
This mechanism can be important even where litigation is contemplated.
Administrative reconsideration can provide an opportunity to correct factual errors, create a documented response to the government's rationale, and clarify matters that otherwise might become embedded in the administrative record.
The recent cases also demonstrate why submissions should be specific.
Simply stating that a designation is inaccurate may be less useful than showing precisely why a cited shareholder does not exercise control, why an investment has been mischaracterized, why two entities do not have the relationship attributed to them, or why a government program does not provide the assistance alleged.
In administrative-law litigation, detail matters.
Evidence of Commercial Harm Can Matter as Much as Evidence on the Merits
WuXi provides another practical lesson.
A company seeking a preliminary injunction must normally demonstrate not only a likelihood of success on the merits but also irreparable harm.
WuXi submitted evidence concerning actual customer reactions following its listing: projects were paused or redirected, customers reconsidered relationships, suppliers reacted, and business opportunities were reportedly lost.
The court treated those developments as concrete evidence rather than purely speculative reputational concerns.
This suggests that a company contemplating emergency judicial relief should begin preserving evidence immediately after designation.
Relevant evidence may include customer communications, terminated contracts, suspended projects, financing consequences, supplier actions, lost bidding opportunities, compliance questionnaires, internal customer policies, and other contemporaneous records demonstrating how counterparties responded to the designation.
This documentation may ultimately matter as much to obtaining interim relief as the underlying APA argument.
A Successful Challenge May Produce Different Types of Relief
Companies should also have realistic expectations about remedies.
The recent cases illustrate at least three possibilities.
In WuXi, the district court issued a preliminary injunction preventing DoD from giving effect to the designation while the litigation proceeds.
In Hesai, the D.C. Circuit found a constitutional procedural violation but remanded without vacating the challenged designation.
In DJI, the court affirmed significant portions of the government's analysis but remanded another issue for additional judicial consideration.
In other words:
winning an argument is not necessarily the same as obtaining immediate delisting.
The appropriate strategy therefore may depend on the company's objective. A company facing rapidly deteriorating customer relationships may place greater value on preliminary injunctive relief. Another may focus on creating a record for administrative reconsideration. Another may seek a definitive interpretation of a particular statutory criterion.
Litigation strategy should follow the commercial problem rather than assuming that every case has the same desired remedy.
Annual Redesignation Does Not Necessarily Eliminate an Existing Challenge
Another useful feature of the DJI and Hesai decisions concerns the annual nature of the list.
DoD may issue a new Section 1260H list while litigation concerning an earlier designation remains pending.
The D.C. Circuit declined to treat that fact alone as automatically mooting the existing cases. Among other considerations, an earlier designation may continue to have reputational consequences, and similar procedural or substantive issues may recur in subsequent designations.[7]
For listed companies, that means litigation strategy should consider each designation carefully rather than assuming that publication of a new annual list automatically ends the previous dispute.
At the same time, a new designation may contain different statutory grounds or factual explanations and may itself require a separate challenge.
More Litigation Is Coming
The August decisions are unlikely to be the end of Section 1260H litigation.
Alibaba filed a challenge to its June 2026 designation in the Northern District of California, asserting APA and constitutional claims. ChangXin Memory Technologies (“CXMT”) filed a separate challenge in the District of Columbia on August 28, 2026.
Both cases remain pending as of September 15, 2026.[8]
Those proceedings may further develop several unresolved issues, including the meaning of “affiliated with,” the evidentiary showing necessary for particular designation grounds, the procedural protections required before designation, and the remedies available when DoD's reasoning is found deficient.
What Companies Should Take From the Cases
The emerging litigation does not support either extreme conclusion.
It would be incorrect to assume that courts will simply defer to every Section 1260H designation because national-security considerations are involved.
It would be equally incorrect to assume that a company can readily obtain delisting merely by challenging DoD's evidence.
The cases instead suggest a more conventional administrative-law framework:
DoD receives substantial deference within the authority Congress gave it, but it must still apply the statute, accurately characterize the evidence, explain its reasoning, and comply with applicable procedural requirements.
For companies, that suggests several practical priorities.
Companies with meaningful U.S. exposure should understand whether their ownership structure, government-program participation, research relationships, industrial locations, or other public information could raise issues under the statutory criteria.
If designated, they should obtain and analyze the stated justification quickly, use the reconsideration process strategically, identify factual errors with precision, preserve all potentially relevant responses to the designation, and evaluate judicial relief before commercial consequences become difficult to reverse.
Counterparties should exercise similar care.
A Section 1260H designation is significant, particularly for companies with DoD or other government-related business. But it should not automatically be treated as equivalent to an OFAC blocking sanction or a comprehensive prohibition on private commercial relationships. The actual statutory restrictions—and their effective dates, scope, exceptions, and supply-chain implications—should be analyzed separately.
Looking Ahead
Section 1260H is increasingly functioning as more than a government reporting list.
As Congress attaches additional regulatory consequences to designation, the accuracy and procedural integrity of the listing process become correspondingly more important.
The recent cases therefore matter beyond the individual companies involved.
WuXi shows that courts may intervene where an agency's factual rationale does not match the underlying record. DJI demonstrates both the considerable deference available to DoD and the limits on courts supplying rationales the agency itself did not give. Hesai establishes that, in appropriate circumstances, the listing process can implicate meaningful pre-designation due-process protections.
The common thread is relatively straightforward:
national-security designations remain subject to administrative law.
For companies that may fall within the expanding Section 1260H framework, understanding that process—and preparing the factual record before a dispute arises—may become as important as responding to the designation after it occurs.
Notes
[1] Section 1260H of the William M. (Mac) Thornberry National Defense Authorization Act for FY2021, as amended; Notice of Availability of Designation of Chinese Military Companies, 91 Fed. Reg. 35,189 (June 10, 2026). The current statute requires annual publication through 2030, and the 2024 amendments require the unclassified list to include a justification for each listed entity. LTNR
[2] The D.C. Circuit has noted that Section 1260H designation now carries consequences including restrictions on certain DoD and Department of Homeland Security contracting and specified Department of Energy financial assistance. Section 805 of the FY2024 NDAA separately establishes DoD procurement restrictions, including the direct-contracting restriction effective June 30, 2026 and a broader indirect-procurement restriction beginning June 30, 2027. D.C. Circuit Court
[3] WuXi AppTec Co., Ltd. v. U.S. Department of Defense, No. 1:26-cv-02069 (D.D.C. Aug. 7, 2026). The court found that DoD had materially misread evidence concerning an investment fund's holdings and the nature of WuXi's participation as a third-party laboratory in certain studies, and granted a preliminary injunction. Justia Law
[4] SZ DJI Technology Co., Ltd. v. Department of Defense, No. 25-5367 (D.C. Cir. Aug. 14, 2026). The D.C. Circuit affirmed portions of the district court's judgment but reversed regarding DoD's “contribution” determination, concluding that the district court could not sustain agency action on rationales that the agency itself had not provided. The case was remanded for further proceedings. D.C. Circuit Court
[5] Hesai Technology Co., Ltd. v. Department of Defense, No. 25-5256 (D.C. Cir. Aug. 18, 2026). The court held that the combination of reputational harm and automatic statutory exclusion from certain government opportunities was sufficient to establish a protected interest and that Hesai was entitled, absent an adequate particularized justification for delay, to notice of the relevant unclassified materials and a meaningful opportunity to respond before redesignation. D.C. Circuit Court
[6] The June 2026 Federal Register notice expressly permits listed companies to request reconsideration and to submit evidence showing either that an insufficient basis exists for listing or that the circumstances supporting the designation no longer apply. LTNR
[7] Both the DJI and Hesai decisions rejected, on the records before them, the proposition that publication of a subsequent annual Section 1260H designation automatically rendered the challenge to an earlier designation moot. D.C. Circuit Court
[8] Alibaba Group Holding Limited v. U.S. Department of Defense, No. 5:26-cv-06227 (N.D. Cal., filed June 23, 2026); ChangXin Memory Technologies, Inc. v. U.S. Department of Defense, No. 1:26-cv-03025 (D.D.C., filed Aug. 28, 2026). Both proceedings remained pending as of September 15, 2026. Justia Dockets & Filings
This article reflects developments through September 15, 2026 and is intended for general informational purposes only.
