[00:00:00] Speaker 01: K-125-6367. [00:00:01] Speaker 01: SCTGI Technology COVID-Limited and SCTGI Biowire Technology COVID-Limited at balance versus United States Department of Defense head-up. [00:00:13] Speaker 01: Mr. Schaeffer for the details. [00:00:15] Speaker 01: Ms. [00:00:15] Speaker 01: Cantel for the updates. [00:00:17] Speaker 03: Good morning, Council. [00:00:18] Speaker 03: Mr. Schaeffer, please proceed when you're ready. [00:00:20] Speaker 04: Good morning, Chief Judge Srinivasan. [00:00:22] Speaker 04: Good morning, Your Honors. [00:00:24] Speaker 04: Your honors, the stakes in this appeal are high for my client DJI, but they're even higher and broader given that court cherished principles of administrative law hang in the balance. [00:00:35] Speaker 04: In our respectful view, this court cannot possibly affirm without compromising the principles and precedents that this court has long and faithfully superintended. [00:00:45] Speaker 04: Because essential explanation and evidence from the agency are both missing on this record, this court has ample grounds for vacating the instant listing of DJI. [00:00:55] Speaker 04: And I'd emphasize, Your Honor, that to its credit, the district court made things streamlined and simple for this court. [00:01:02] Speaker 04: It expressly rejected most of the premises for DOD listing DJI as it did. [00:01:08] Speaker 04: So all that remains is a slender, frail thread of reasoning. [00:01:12] Speaker 04: My modest submission to your honors is simply that the statutory terms together with this court-subtle precedent dispose of that sole persisting thread on which the validity of DOD's listing depends. [00:01:24] Speaker 04: So let me start it by may, your honors, with the statutory question of assistance. [00:01:29] Speaker 04: This is, your honors, 1260H, letter D, numeral two, letter A. [00:01:36] Speaker 04: So here, Your Honors, to identify a, quote, military-civil fusion contributor, the agency is meant to look to whether an entity is, quote, knowingly receiving assistance, close quote, through the Chinese military planning apparatus in any given year. [00:01:55] Speaker 04: Against that statutory backdrop, the evidentiary gaps are manifest. [00:02:00] Speaker 04: And I noted the outset, Your Honor, that 1,600 plus companies have received the same award in various years without being listed by DoD. [00:02:08] Speaker 04: I'll return to that point later, Your Honors, but you can see that in App 649. [00:02:12] Speaker 04: DoD's record establishes that there are 16 other plus companies. [00:02:15] Speaker 03: Sorry to pause you. [00:02:16] Speaker 03: I just want to make sure that [00:02:17] Speaker 03: the clock is running. [00:02:19] Speaker 04: Oh, good point. [00:02:21] Speaker 04: Good point, your honor. [00:02:23] Speaker 04: Thank you. [00:02:28] Speaker 04: So putting that observation aside for the moment, the latest evidence of DJI receiving recognition as, quote, National Enterprise Technology Center, NETC, your honor. [00:02:39] Speaker 04: That's from 2021 at the latest. [00:02:42] Speaker 04: You can find that in the app 275. [00:02:45] Speaker 04: That, Your Honors, is a far cry from DJI currently receiving assistance as is necessary for these listings. [00:02:54] Speaker 04: And note, Your Honors, that Congress specifically intends the listings to be made annually and to be revisited annually. [00:03:01] Speaker 04: So to say that a 2021 recognition carries forward to 2025 is to really undo that congressional intent. [00:03:10] Speaker 06: Why would we think that a recognition by the Chinese government is itself time limited? [00:03:18] Speaker 06: If we thought that the record establishes that at one time it came with benefits like tax breaks, the explicit purpose of which is to support a company, why would [00:03:31] Speaker 06: and we don't know whether they're time limited or not, isn't it reasonable to think that they would be ongoing? [00:03:38] Speaker 04: Your honor, I think Congress thought the opposite. [00:03:40] Speaker 04: I think Congress thought that this was to be made explicitly based on the latest and best information available and that you can have delistings, the agency shall delist. [00:03:50] Speaker 04: And so if it were that any recognition at any time meant that you are perpetually understood to be knowingly receiving benefits, you wouldn't have that operation of the statute. [00:04:01] Speaker 04: But also Judge Garcia, I mean, it's DOD's cherry pick record, but it does tell you 1,600 plus companies have received [00:04:08] Speaker 04: this award over time. [00:04:09] Speaker 04: I mean, it's an award, Your Honors. [00:04:11] Speaker 04: It's like the Grammys. [00:04:12] Speaker 04: It's like chambers. [00:04:14] Speaker 04: It's something that is done every year. [00:04:16] Speaker 04: And Judge Garcia, respectfully, there is nothing in the record that says the extent to which companies on whom the award is bestowed get those tax benefits. [00:04:27] Speaker 03: Even past awards have ongoing benefits. [00:04:31] Speaker 03: If you talk about a Pulitzer Prize-winning author, [00:04:34] Speaker 03: Yes, they won the Pulitzer Prize eight years ago, but they're a Pulitzer Prize winning author forever and that carries something, a Nobel Prize winning physicist. [00:04:42] Speaker 03: So it's conceivable just because it's a past award doesn't necessarily mean it doesn't have her own effect. [00:04:47] Speaker 03: It doesn't necessarily mean that it does, but it doesn't necessarily mean that it doesn't. [00:04:52] Speaker 03: And on this one with the unclassified [00:04:55] Speaker 03: part of the instrument that we're reviewing, it does say that DJI benefits from the NETC qualification through tax breaks, free cash subsidies, and financial support and benefits in the present sense. [00:05:08] Speaker 03: Do you disagree with that? [00:05:13] Speaker 03: Is it true that there's no enhanced eligibility for a tax subsidy now by virtue of having gotten the NETC recognition in the past? [00:05:27] Speaker 04: Maybe my quarrel is a legal one, Chief Judge. [00:05:30] Speaker 04: I don't think, if I am theoretically eligible for a tax break, I think there is a leap to say, and I am benefiting from the tax break. [00:05:40] Speaker 03: I understand the legal point, but I just want to know as a factual matter, is there a dispute before us on whether [00:05:47] Speaker 03: Because of a past recognition as an NETC, there is a current eligibility for a tax subsidy that otherwise wouldn't be there, but for the NETC designation. [00:05:58] Speaker 04: Chief Judge Srinivasan, there is a factual blank on that. [00:06:01] Speaker 04: Keep in mind, I didn't get to make any bit of this record. [00:06:04] Speaker 04: This is DOD's record. [00:06:05] Speaker 04: We had no chance to make any submissions to it whatsoever. [00:06:09] Speaker 04: We haven't been heard by anyone. [00:06:10] Speaker 04: But there's nothing, and I stand on this, there is nothing in DOD's record that says the 2021 award has any import, even eligibility import for DJI. [00:06:23] Speaker 03: And I think... The document says benefits. [00:06:27] Speaker 03: Through tax breaks and so I just benefits is present sense. [00:06:31] Speaker 04: I'm sorry, I'm benefited. [00:06:32] Speaker 04: It says benefits. [00:06:33] Speaker 04: Are you referring to the report or to the article that is cited in the report? [00:06:38] Speaker 03: The report itself on appendix 276 classified bullet points as benefits and. [00:06:43] Speaker 03: I'm just do you. [00:06:45] Speaker 03: Can you make a representation? [00:06:47] Speaker 03: Is there a current benefit in terms of eligibility for a tax break that otherwise wouldn't exist but for the NETC recognition? [00:06:57] Speaker 03: Two points. [00:06:58] Speaker 04: I will answer your honor's question. [00:07:00] Speaker 04: But let me start, please, with the fact that this is a substantial evidence challenge. [00:07:04] Speaker 04: So our point, what you're reading from the report does not have substantial evidence to support it. [00:07:09] Speaker 04: Put that aside. [00:07:10] Speaker 04: And that's what your honors will be upholding. [00:07:11] Speaker 04: If you say this is good enough as to DJI for any of these 1600 plus companies, the fact that they ever received the award means they are knowingly receiving benefits. [00:07:20] Speaker 04: We would submit that that follows. [00:07:22] Speaker 04: What I can tell your honor is my best understanding is that DJI is not knowingly receiving benefits from the Chinese military planning apparatus through this award or otherwise. [00:07:32] Speaker 04: I offer that to your honor, but I don't have that in the record. [00:07:35] Speaker 04: Let me add a little bit to that. [00:07:36] Speaker 03: And if you can't answer it, I understand that because I understand your legal point about substantial leavens. [00:07:40] Speaker 03: But let me just ask on the factual question. [00:07:42] Speaker 03: And if you can't answer it, you can't answer it. [00:07:45] Speaker 03: It's one thing to say we're not currently receiving financial benefits if that means we're not receiving, in fact, receiving a tax break. [00:07:53] Speaker 03: But what I'm asking about is eligibility to get a tax break that otherwise wouldn't be there because of the NETC designation. [00:08:02] Speaker 04: I think I understand what your honor's saying. [00:08:05] Speaker 04: But I want to be precise about this. [00:08:07] Speaker 04: My understanding is that the 2021 award does not result in any current eligibility for a tax break. [00:08:16] Speaker 04: Not even a theoretical. [00:08:17] Speaker 04: So there's that temporal issue. [00:08:19] Speaker 04: But then your honor is asking, am I disputing that the record establishes that the award recipient, DJI or anyone else, is theoretically eligible for benefits? [00:08:29] Speaker 04: We are not disputing that. [00:08:31] Speaker 04: I think that is established by the record. [00:08:33] Speaker 04: But what I think DOD needs to do is connect it [00:08:36] Speaker 04: What is established by the record that a recipient of the award by virtue of receiving the award has some theoretical eligibility for benefits, tax benefits or other benefits, just like presently has eligibility. [00:08:52] Speaker 04: Not from the 2021 award. [00:08:55] Speaker 04: I believe that these awards are given on an annual or biannual basis. [00:09:01] Speaker 04: I see. [00:09:01] Speaker 03: So your understanding is that if you get a recognition in 2021, you're eligible for tax breaks in that year. [00:09:09] Speaker 03: But then even the eligibility for tax breaks cuts off at the end of 2021. [00:09:13] Speaker 04: That is my understanding. [00:09:14] Speaker 04: You have to read that is my understanding. [00:09:16] Speaker 04: Okay. [00:09:17] Speaker 04: And it is these are regular awards. [00:09:19] Speaker 04: They're not awards that are given in perpetuity. [00:09:22] Speaker 04: They are given and they are revisited. [00:09:24] Speaker 04: And there's also nothing in the company gets it over and over. [00:09:26] Speaker 04: It could be the same company or could not. [00:09:28] Speaker 03: Do you know that the same company has gotten it over and over? [00:09:31] Speaker 04: I think that there have been some recurring recipients, but not all are recurring as recipients, and I don't have. [00:09:39] Speaker 03: I take the point that this is not in the record, so I'm not sliding that point, but I just was curious about your general understanding by way of context. [00:09:46] Speaker 04: And let me also note, there's nothing in the record about what's required to apply for the award. [00:09:50] Speaker 04: What level of agency is required for that? [00:09:52] Speaker 04: What percentage of award recipients actually qualify for any of the benefits and avail themselves of those benefits? [00:09:59] Speaker 04: What percentage of the award recipients are in fact [00:10:01] Speaker 04: companies that are associated with China as opposed to companies like Volkswagen and Nokia that have also received it. [00:10:07] Speaker 04: So, and I'd note, Chief Judge Trinovasan, I think that the theory that DOD pivots to in front of this court is separate and distinct. [00:10:16] Speaker 04: The award, as I understand the way they treat the award now, the award itself is the benefit. [00:10:22] Speaker 04: That's what they're offering to your honor. [00:10:23] Speaker 05: This procedural in the district court [00:10:28] Speaker 05: Did you say, look, this award in 2021 doesn't come with any tax breaks? [00:10:37] Speaker 05: This report is conclusion is erroneous and not supported by substantial evidence. [00:10:45] Speaker 05: And here is a declaration or some other evidence that shows that DJI isn't getting any tax break. [00:10:54] Speaker 04: Judge Wilkins, we had what we had submitted to DOD previously as to why DJI was not deserving of a listing. [00:11:01] Speaker 04: But in a case that involves... Did any of that... [00:11:05] Speaker 05: say what I just said? [00:11:06] Speaker 04: No, because it had not been relied upon by DOD for prior listings that DJI had received the NETC award. [00:11:13] Speaker 04: That was new. [00:11:15] Speaker 05: But once you saw the document that's, you know, the report from, I guess it's 2023, that's in the JA in the language at 276, did you in the district board say, [00:11:32] Speaker 05: There's no substantial evidence to support this finding that DJI benefits from the NETC qualification because that's not how these tax breaks work. [00:11:45] Speaker 05: And here's a declaration. [00:11:46] Speaker 04: Chad Wilkins, I thought myself constrained. [00:11:49] Speaker 04: It was an APA challenge. [00:11:50] Speaker 04: DoD was perfectly clear that the administrative record had closed and that the challenge would need to be decided within the four corners of that record. [00:12:00] Speaker 04: And so there was no opportunity for us to do that. [00:12:04] Speaker 04: But what I did argue to the district court is what I'm respectfully arguing to your honors, that you look at the record, [00:12:09] Speaker 04: the same record that I'm held to, DOD is held to. [00:12:12] Speaker 04: And you just will not find that substantial evidence is our submission. [00:12:16] Speaker 04: And I think DOD recognizes that, which is why they offer a different theory to Your Honors, which is one where the award itself is the benefits. [00:12:24] Speaker 04: And for the same reason that we'll talk about later, Your Honors, the Channery Doctrine, I don't think that DOD here can rely on a rationale that's different from what Your Honors will see in the report. [00:12:34] Speaker 05: We're talking... So I guess just... [00:12:37] Speaker 05: put a ribbon on this. [00:12:40] Speaker 05: I mean, yes, it's an administrative case and the court is bound by the administrative records, but there's lots of instances where an agency makes an assertion and it's in the administrative record and then there's a finding. [00:12:58] Speaker 05: The agency doesn't always have to show all their work. [00:13:03] Speaker 05: There can be just a conclusion that's made. [00:13:07] Speaker 05: And in those circumstances where a regulated party believes that that conclusion isn't really supported by substantial evidence, there is a mechanism for party to say to the court, that's not the case. [00:13:29] Speaker 04: Well, Judge Wilkins, here's my friendly amendment to your Honor's premise. [00:13:32] Speaker 04: I mean, I've had those cases. [00:13:33] Speaker 04: I welcome those cases. [00:13:35] Speaker 04: They're usually cases where we have an ALJ or we have an agency that's taking submissions from the adversely affected party, and we have the chance to make our record that way. [00:13:45] Speaker 04: And then when I'm before the court, I can rely upon that administrative record and explain what the agency failed to account for. [00:13:52] Speaker 04: I mean, this is the rare APA case where I'm coming to you at the mercy of DOD's cherry pick record and I still submit to your honors in earnest that you will not find in DOD's record substantial evidence supporting its conclusion. [00:14:07] Speaker 04: That's not a very demanding standard. [00:14:09] Speaker 04: I would recognize it's not a very demanding one, but it's one that has some bite and it's not been met here. [00:14:14] Speaker 06: Just one more question on the procedural issue. [00:14:17] Speaker 06: My understanding is that in 2023, you did submit a delisting petition that's in our JA at 1195. [00:14:23] Speaker 06: Is there a reason maybe you thought it was not going to do anything? [00:14:29] Speaker 06: Is there a reason you didn't try that this time? [00:14:31] Speaker 04: We've sought reconsideration since April. [00:14:36] Speaker 04: So we have had pending with DOD submission seeking reconsideration. [00:14:41] Speaker 04: There's no timeline on that. [00:14:42] Speaker 04: There's no obligation for DOD to do anything with it. [00:14:45] Speaker 04: So we are seeking reconsideration into now 2026. [00:14:49] Speaker 04: We just don't have any response to that. [00:14:52] Speaker 04: And that reconsideration submission is not part of the administrative record. [00:14:56] Speaker 04: Because it had closed. [00:14:58] Speaker 06: And this was after we were, you know... In those, have you made the factual representations you're making today, obviously, about what this NETC recognition is and eligibility for benefits and so forth? [00:15:11] Speaker 04: Judge Garcia, what we have said is DJI is not knowingly receiving anything from the Chinese military planning apparatus. [00:15:18] Speaker 04: That is our submission. [00:15:20] Speaker 04: I'm not in a position to make representations to your honor about DJI status relative to this award. [00:15:27] Speaker 04: I simply submit to your honors that the record is what the record is. [00:15:31] Speaker 04: And if this record suffices for DJI, it suffices for any company. [00:15:36] Speaker 04: that happens to have been listed as receiving the NETC award in 2021. [00:15:41] Speaker 04: And that argument is what it is, Your Honor, is that's a substantial evidence argument. [00:15:45] Speaker 04: We also have our argument about the absence of reasoned explanation as to another separate essential statutory requirement that needs to be satisfied. [00:15:55] Speaker 04: This is the one requiring that DJI, there be an explanation for why DJI contributes to the quote Chinese defense industrial base, close quote, this is under [00:16:06] Speaker 03: As to that part of it, is it your understanding that it's common ground here that that part of the statute is an additional element? [00:16:16] Speaker 04: Yes, that is common ground. [00:16:17] Speaker 04: And Judge Friedman was very clear about that. [00:16:19] Speaker 04: I don't think DOD disputes that. [00:16:21] Speaker 04: For this line of analysis, which is what was upheld. [00:16:24] Speaker 03: Because my understanding is that in other cases, that may not be so clear, that it may be that that's redundant of the first part that we've been talking about is a military-civil fusion contributor. [00:16:38] Speaker 04: Thank you for the clarification. [00:16:39] Speaker 04: I will leave it to my friends to offer their statutory construction. [00:16:42] Speaker 04: I think at least in a portion of their brief, they do seem to suggest, just as you're saying, Your Honor, [00:16:48] Speaker 04: that these are co-extensive inquiries and to say that DJI was a military civil fusion contributor who received benefits establishes that it's now flowing the opposite way, that it's contributing to the Chinese defense industrial base. [00:17:10] Speaker 04: That is a statutory argument that they've advanced to the court. [00:17:13] Speaker 04: I think, Your Honor, it really does. [00:17:16] Speaker 04: It guts the congressional intent to have these be separate and distinct inquiries. [00:17:20] Speaker 04: It also takes away Judge Friedman's express rationale. [00:17:24] Speaker 04: He was very clear, Chief Judge Sreenivasan, that he found comfort from the fact that it would not suffice solely for DOD to establish that DJI had received the NETC award. [00:17:36] Speaker 04: He said they would separately [00:17:39] Speaker 04: need to show that a company is contributing to the Chinese defense industrial base. [00:17:44] Speaker 04: And that's also how Congress structured the statute. [00:17:47] Speaker 04: There's a definition, the definitional portion of military civil fusion contributor, that's a defined term. [00:17:54] Speaker 04: And it says there that it suffices for the company to have received. [00:17:59] Speaker 04: But then in the earlier portion of the statute, when it talks about the Chinese defense industrial base, it just uses this term as a standalone term. [00:18:07] Speaker 04: it would basically collapse two separate statutory inquiries to say that they fold together and satisfying one suffices for the other. [00:18:15] Speaker 04: I don't think that's a coherent itemized in the report. [00:18:18] Speaker 04: It is your honor. [00:18:18] Speaker 04: So I think I think contemporaneously D.O.D. [00:18:21] Speaker 04: analyzes the web that way. [00:18:22] Speaker 04: They've argued it that way. [00:18:23] Speaker 04: That's how the district court analyzed it in this case and also the side case. [00:18:27] Speaker 04: So I leave it to my friends for the other side if they're going to offer a different argument. [00:18:31] Speaker 04: I don't think that that's plausible or available to them at this point. [00:18:34] Speaker 04: So assuming that this needs to be separately satisfied, and I don't think that's a controversial proposition, I think it is equally undisputed, Your Honors, that DOD's entire recorded rationale, I mean every syllable of it apart from the heading, is classified such that neither DJI [00:18:53] Speaker 04: nor the district court have reviewed it at all. [00:18:57] Speaker 04: That, Your Honors, decides the case in our respectful submission in our current posture. [00:19:01] Speaker 04: There's just no path to affirmance consistent with Chenery and its progeny. [00:19:05] Speaker 04: I point this court to its decision in Burwell, but there are many of them that say... But at J.A. [00:19:11] Speaker 05: 273, the summary findings, the report, the unclassified report, [00:19:20] Speaker 05: in explaining the summary findings says that DJI provides commercial services, manufacturing, producing or exporting through the development, manufacturing and sale of drone and camera technology. [00:19:35] Speaker 05: And so based on the foregoing that the Department of Defense makes this determination. [00:19:43] Speaker 05: And so [00:19:51] Speaker 05: Can't we look to the summary findings and elsewhere in the report to see, I guess, as the district court did, whether this finding about contributing to the Chinese military, whatever the proper terminology is, [00:20:09] Speaker 05: that there's substantial evidence for that finding. [00:20:13] Speaker 04: I'm sorry to disagree with your honor's premise, but I don't think the district court thought it was finding in DOD's report, contemporaneous report, the explanation for why DJI was deemed to be contributing to the Chinese defense industrial base. [00:20:28] Speaker 04: The district court, I think, was very clear that he saw it clear enough from DOD's briefing and was inclined to credit that. [00:20:35] Speaker 04: That's my understanding of what the district court did. [00:20:38] Speaker 04: And what Your Honor is quoting from the report, yes, DOD did observe that DJI makes commercial and recreational drones. [00:20:46] Speaker 04: I would agree it does that. [00:20:48] Speaker 04: But to say that it necessarily follows simply from that, [00:20:52] Speaker 04: that it is contributing to the Chinese defense industrial base would have astonishing and I think unacceptable implications for a whole stripe of companies, including those who make drones, but also those who make automobiles. [00:21:03] Speaker 05: But there's also a finding at that same page, J273, that DJI is indirectly owned or beneficially owned. [00:21:14] Speaker 05: by Chinese state-owned entities. [00:21:17] Speaker 04: That was rejected by Judge Friedman. [00:21:19] Speaker 04: He specifically, that's a separate path potentially to deeming a company to be a Chinese military company. [00:21:26] Speaker 04: And you can also find in the decision where Judge Friedman found that that was not established as a matter of fact and as a matter of law and as a matter of due process. [00:21:35] Speaker 04: And DOD is not cross-appealed on that. [00:21:39] Speaker 05: So I don't think that that's an available rationale for differentiating DJI from all sorts of other companies that make all sorts of other commercial and recreational products that could theoretically... The finding though, rejecting the finding that they are indirectly owned or controlled is not the same as rejecting finding that they work with and might be benefiting the Chinese. [00:22:06] Speaker 04: I've read that report carefully many times, Judge Wilkins. [00:22:08] Speaker 04: I don't see in the unclassified record anything that says DJI is working with. [00:22:15] Speaker 04: the China or the Chinese military, let alone doing that to develop drones in a way that is part of civil military fusion. [00:22:23] Speaker 04: I don't find that the report. [00:22:24] Speaker 04: Now, I don't know what I'm not seeing. [00:22:26] Speaker 04: I don't know that. [00:22:28] Speaker 04: But the reason I don't know that is because we're talking about, as Chief Judge Trina Bosson and I were discussing, there is a specific portion of the report that reflects this determination under this heading. [00:22:40] Speaker 04: And all I have is the heading, everything else is blacked out. [00:22:43] Speaker 05: I don't know it's fair and the district wanted... Let's suppose we review the classified portion and we... Let's suppose we agree with you that the unclassified portion, there's not substantial evidence to meet the standard. [00:23:02] Speaker 05: But once we review the classified portion, we believe that there is. [00:23:08] Speaker 04: I'd like to see if I can dissuade you from doing that, maybe at a later stage of the argument, but I'll accept your honor's hypothetical fruit. [00:23:15] Speaker 04: I would ask your honor to review that with the same judicial scrutiny that applies to any portion of the record. [00:23:23] Speaker 04: You won't have had the benefit of my arguments at that point. [00:23:26] Speaker 04: You won't have had adversarial process on it. [00:23:29] Speaker 04: But I do submit that you have from DOD a definition elsewhere of what it means to be contributing to a defense industrial base. [00:23:37] Speaker 04: It means you have to be able to meet military requirements. [00:23:40] Speaker 04: We've cited that definition in our brief. [00:23:42] Speaker 04: There's nothing different from DOD here. [00:23:43] Speaker 04: You have DOD acknowledging these are commercial and recreational drones that DJI makes. [00:23:50] Speaker 04: And I do have an unclassified record of evidence supposedly surrounding the findings that are made by DOD. [00:23:59] Speaker 04: And those portions of the record, I'll quote them to your honors, establish... [00:24:03] Speaker 05: get to the answer to my question rather than pushing it off to the... Why shouldn't we look at the classified record? [00:24:12] Speaker 05: And if we think the classified record definitively answers the question and supports the designation, we affirm. [00:24:21] Speaker 05: Why shouldn't we do that? [00:24:23] Speaker 04: I think your honor should be just as loathe to do that in this case as you are in the TikTok case and as the Supreme Court was, which were disavowed any reliance upon the classified record and justice courses concurred after this court had taken that approach. [00:24:36] Speaker 04: I think that there are obviously core precepts that are part of the judicial process that this court cares deeply about. [00:24:42] Speaker 04: And you see it in cases like Green, you see it in Microsoft, you see it in all sorts of cases where this court has said is a matter of judicial process. [00:24:50] Speaker 04: You do not want to have us be completely barred from having any access to evidence on which this court would rely. [00:24:58] Speaker 04: And of course, the district court, which is meant to be doing this work in the first instance, hasn't done any of this. [00:25:03] Speaker 04: I think you would want Judge Friedman's determination. [00:25:06] Speaker 04: We had a motion to compel the classified record to our security cleared counsel, Mr. Nitsa, who was prepared to look at whatever could be shared that was never decided. [00:25:15] Speaker 04: because the district court effectively deemed that submission moot because he wasn't looking at or relying upon the classified evidence at all. [00:25:23] Speaker 04: And you also have in this case, you have demonstration that when you have completely untested evidence, then you do have mistakes. [00:25:31] Speaker 05: You have a statute that says that the court can look at this ex parte. [00:25:37] Speaker 05: You didn't have such a statute in TikTok and other cases, right? [00:25:42] Speaker 04: Well, in TikTok, you had a congressional statute that didn't speak to the process, but you had Congress's determination. [00:25:47] Speaker 05: Here, Congress dictated the process. [00:25:52] Speaker 05: And we have cases like Rawls, where a company is barred from an acquisition. [00:26:03] Speaker 05: And we said in Rawls that due process entitles you to know more than the unclassified record. [00:26:13] Speaker 05: So to the extent that the president makes a determination that you cannot acquire this U.S. [00:26:18] Speaker 05: company for national security reasons, the only thing you're entitled to know and try to respond and defend [00:26:27] Speaker 05: and change the president's mind is based on the unclassified record. [00:26:34] Speaker 04: You did say that, Judge Wilkins, and as you were vacating in that case and remanding because there had not been access to the unclassified evidence. [00:26:43] Speaker 04: So I don't think you had to reach the bottom line holding that you would have to reach here as a matter of, I think, first impression. [00:26:49] Speaker 04: And I acknowledge you do have congressional prescription that says there can be ex parte in-camera submissions. [00:26:57] Speaker 04: I don't think that tells you what the constitutional floor is. [00:27:00] Speaker 04: That's not up to Congress. [00:27:01] Speaker 04: That's up to this court. [00:27:02] Speaker 04: I don't think that tells you how the court manages its own business, which is under Article 3 in the separation of powers. [00:27:08] Speaker 04: I don't think you should be deferring to Congress about judicial, unduly deferring to Congress about how your honors are conducting your review of the district court at this point. [00:27:18] Speaker 04: But I would also emphasize, Jed Wilkins, every syllable of this has been redacted. [00:27:23] Speaker 04: Every syllable [00:27:24] Speaker 04: And we know that there's unclassified evidence that's being cited in support, and we're offering security cleared counsel who could, you know, under whatever strictures have a glimpse of a summary of what DOD is doing with the relevant evidence. [00:27:39] Speaker 04: And one other point, Your Honor, of course, Your Honor's precedent on this will be critically important to a host of regulated parties. [00:27:46] Speaker 04: I mean, it's not just DJI who will care a lot about your honor's decision. [00:27:49] Speaker 04: It's other companies and they should know, is DOD saying that anyone who makes a commercial or recreational drone by virtue of that is contributing to the Chinese military industrial base? [00:28:00] Speaker 04: Is it because there are specific showings as to what's being done to convert these products on the battlefield? [00:28:07] Speaker 04: Is it because of specific alleged ties to China that DJI is being differentiated or is it [00:28:13] Speaker 04: as DOD seems to suggest in their brief, the mere fact that someone makes a product that could hypothetically be converted for some use on a battlefield means DOD can say that they've satisfied this requirement. [00:28:25] Speaker 04: To say that this court has relied on the classified evidence alone, I think would be really problematic as a matter of precedent too. [00:28:33] Speaker 06: Council, as a doctrinal matter, is the due process clause the exclusive source of your right to review the classified information? [00:28:43] Speaker 04: It's a great question, Judge Garcia. [00:28:45] Speaker 04: I don't have a definitive answer to that. [00:28:46] Speaker 04: I don't think it's the sole exclusive source. [00:28:49] Speaker 04: And I would note, I think due process operates differently once we are in court and have a right to be in court and that we're obtaining just review as compared to what we will talk about with respect to pre-deprivation administrative process. [00:29:03] Speaker 06: Yeah, I think you can see where the question is going, right? [00:29:05] Speaker 06: Is it bound up in this question of whether you have a liberty interest at stake and if just so that [00:29:12] Speaker 06: We understand the position, whether, you know, if you read Rawls and all these other cases, they are analyzing this as a due process matter, not sort of some inherent matter of judicial process. [00:29:27] Speaker 04: I think I do know where the question's going, so let me answer it this way, Judge Garcia. [00:29:31] Speaker 04: Even if you disagree with me as to whether DJI was entitled to pre-deprivation process as a matter of due process, which it did not receive, even if you disagree with me there, you're not done with me for purposes of deciding is there a due process or other problem with reviewing the classified record. [00:29:49] Speaker 06: I'm not saying I think this, but if we concluded that there is no liberty interest or property interest protected by the due process clause at stake in these proceedings, then it does seem like [00:30:04] Speaker 06: the source for your right of access to classified information is gone, right? [00:30:09] Speaker 06: I respectfully disagree with that, Your Honor. [00:30:11] Speaker 06: And the reason why... And what is the separate... That's my simple question, is what other source other than the due process clause? [00:30:17] Speaker 04: I don't have chapter and verse to cite you here, but I'm giving you my best answer. [00:30:21] Speaker 04: I think it does come from Article 3 and how judicial process operates. [00:30:26] Speaker 04: I think it is by virtue of the fact, I don't think that you could disregard due process for this purpose any more than you could disregard, and I mean, this is just a hypothetical, Your Honors. [00:30:36] Speaker 04: If it turned out that a judicial decision maker in DJI's case had been bribed to reach a decision in favor of the government, [00:30:44] Speaker 04: That would be a due process problem, notwithstanding that DJI, before it was in court as a litigant, had not been entitled to pre-deprivation administrative process. [00:30:55] Speaker 04: And I think that there's just a strong judicial norm that needs to be enforced as well. [00:31:00] Speaker 04: And US v. Microsoft, this court was talking about how disfavored ex parte communications are as conflicting with fundamental precepts of our system of justice. [00:31:14] Speaker 04: The Reagan, the same concept was coming out, not tied to, you know, necessarily property or liberty that had been established at the threshold prior to that proceeding. [00:31:23] Speaker 04: I think that's how the Supreme Court spoke of it in green, too. [00:31:27] Speaker 04: I also have Third Circuit cases that I think kind of take the concept beyond the strict threshold analysis of whether free litigation, a party itself suffered a deprivation. [00:31:38] Speaker 06: I appreciate all that. [00:31:39] Speaker 06: Can I, in the interest of time, I want to, I just had a question about your, how you interpret the contribute. [00:31:45] Speaker 06: prong if we think it's a separate prong. [00:31:48] Speaker 06: And I take it you don't, one thing I know you don't think is enough is a company sells products through retailers that could be purchased by a military, correct? [00:32:00] Speaker 06: That's correct, John. [00:32:01] Speaker 06: Especially if the products need to be converted in order to find military. [00:32:04] Speaker 06: So how much, we're going to walk up the chain here. [00:32:08] Speaker 06: Is it enough if you know that the Chinese military is purchasing your products? [00:32:13] Speaker 06: Is it in? [00:32:14] Speaker 04: Well, before we go down this- What does it mean to- I just want to be clear about one thing, Judge Garcia. [00:32:20] Speaker 04: Yeah. [00:32:20] Speaker 04: What I believe is that DOD's articulation of its rationale is critically important, and it needs to be a reasoned explanation. [00:32:28] Speaker 04: You may win on the tennery ground, 100%. [00:32:30] Speaker 04: All I mean to say is it's not it's it's not up to me in the first instance to tell your honors what would need to be established. [00:32:37] Speaker 04: I think DOD has work to do to say here is our principled statutory interpretation and why a company satisfies. [00:32:45] Speaker 04: So I think a lot to answer to be fair to your honors question, a lot depends on what DOD set has said in the classified portion of this record or in some other record where they've explained what is the rationale for the listing of this company as compared to others. [00:32:59] Speaker 04: And now I take your Honor's questions as I find them. [00:33:01] Speaker 04: I just don't want to pretend that I'm able to speak for DoD as to what might be an operative rationale. [00:33:07] Speaker 05: But, Counselor, let's suppose you have a company that makes widgets. [00:33:13] Speaker 05: Yes, Your Honor. [00:33:14] Speaker 05: And maybe, and so it meets the, soon for the sake of the question, that it meets the first standard that it is a military-civil fusion contributor. [00:33:31] Speaker 05: And maybe anybody, I or anybody else could buy these widgets off of Amazon. [00:33:39] Speaker 05: Um, but maybe because these widgets, you know, the way that they work, um, and they're, they're unique and they're special, they're great that, um, military buys them, maybe US military buys them, maybe the Chinese military buys them as well. [00:33:56] Speaker 05: Um, is that company, um, does that meet the, um, contribute to the Chinese defense industrial base? [00:34:05] Speaker 04: I'm skeptical that it would, Judge Wilkins. [00:34:07] Speaker 04: I think DOD would have to do a lot of work to convince you that the statute goes that far. [00:34:13] Speaker 05: If militaries around the world love these widgets, including the Chinese military, then why isn't that true to the Chinese defense industrial bed? [00:34:23] Speaker 04: This court had the same explanation based in the genus, the FDA case. [00:34:30] Speaker 04: There's no limit to the statutory construction at that point. [00:34:34] Speaker 04: I think you would have that problem here if we mean militaries love batteries, militaries love computers, militaries love backpacks, militaries love [00:34:41] Speaker 04: apparel, militaries love cars. [00:34:44] Speaker 04: And so it becomes kind of infinitely capacious if you do it that way. [00:34:49] Speaker 04: But if DOD were to do it that way, I think they would need to be... Congress can write the statute however they want to write the statute. [00:34:56] Speaker 05: That might be an argument that the statute is done, but we don't rewrite statutes for Congress. [00:35:03] Speaker 05: I don't think... We interpret them and we apply it. [00:35:06] Speaker 04: But that's not how I read the statute, but that also to the best of my knowledge is not how DOD has told you it is reading this particular statute. [00:35:13] Speaker 04: But I'll also say Judge Wilkins, I think DJI is better situated than the widget company because they have a policy against military sales and military use. [00:35:21] Speaker 04: These are commercial and recreational drones. [00:35:23] Speaker 04: So what you have in the administrative record I think is powerful for DJI [00:35:29] Speaker 04: that when there's allegedly been use on a battlefield, the Russia-Ukraine battlefield, you've had conversion of the products, so the products are different from what DJI is making and offering, and you've had substandard use. [00:35:42] Speaker 04: They are not military grade. [00:35:44] Speaker 04: They are not fit for military use. [00:35:46] Speaker 04: Every single article that DOD relies upon for the DJI listing says, [00:35:52] Speaker 04: These are inferior drones that can be shot out of the sky. [00:35:55] Speaker 04: They're vulnerable to jamming. [00:35:57] Speaker 04: They don't have the range that they should have. [00:35:59] Speaker 04: Everything that the military, any military would want, let alone the Chinese military, you don't find in DJI's drones. [00:36:05] Speaker 04: So you have not only the policy, but there's practical limitations. [00:36:08] Speaker 04: Now, there's something under the classification that I can't see, but everything I can see says that there has not been basis for the conclusion drawn by DoD. [00:36:18] Speaker 06: curious if you thought about the following seems quite possible next week or next month there's going to be a relisting and that's going to maybe don't have the exact same explanation but it might have a new and [00:36:32] Speaker 06: better explanation. [00:36:34] Speaker 06: How would you, if you've given thought to it, how would we think about mootness if that happens? [00:36:42] Speaker 04: Well, I don't think we would be moot. [00:36:44] Speaker 04: I do think, as we were talking about the 2021 award for DJI and kind of Chief Judge was talking to me about how that carries forward, I think- I'll just put a finer point on it. [00:36:57] Speaker 06: Would we still proceed to decide if [00:36:59] Speaker 06: the 2024 listing was adequate to explain when there's been a new one? [00:37:03] Speaker 04: Just one clarification, the 2025 listing. [00:37:07] Speaker 04: I think so, yes, because that would be assigned to the world. [00:37:09] Speaker 04: This is a name and shame regime. [00:37:10] Speaker 04: It's saying that DJI in 2025 was a Chinese military company. [00:37:14] Speaker 04: And I do think that that has some persisting effect enough for us to have a live case for controversy around that. [00:37:21] Speaker 04: I also think it's telling that that annual listing has not yet [00:37:24] Speaker 04: come, Judge Garcia, I assume that DOD may welcome this court's guidance as to how it arrives at those listings. [00:37:31] Speaker 04: And we also have our concern about due process. [00:37:35] Speaker 04: I think it would be helpful for the sake of future listings to have a determination, even irrespective, perhaps, of what you do with the statutory questions to say that there should be some pre deprivation process or at least post deprivation process. [00:37:47] Speaker 04: We've had none of that. [00:37:48] Speaker 04: I know that we've been up here a long time, so I would just rest on our briefing as to other points that I've not been able to cover unless your honors have other questions. [00:37:57] Speaker 03: Okay, thank you. [00:38:19] Speaker 03: Ms. [00:38:19] Speaker 03: Smithel. [00:38:19] Speaker 02: Yes, good morning, your honors, and may it please the court, Orja Smithel, for the government. [00:38:23] Speaker 02: The department identified DJI as a Chinese military company under section 1260H. [00:38:29] Speaker 02: As the record shows, the Chinese government, and specifically its military industrial planning apparatus, selected DJI for special recognition in light of the drone technology that DJI is developing, drone technology which can and has been used in military conflict and for military purposes. [00:38:46] Speaker 02: The Chinese government's recognition of DJI as an NETC entitled the company to special policy benefits and awards. [00:38:53] Speaker 02: We talked earlier and you heard earlier about some of that discussion in the record at A649, which is what the department cited in its decision. [00:39:02] Speaker 02: I just want to kind of talk a little bit about that because we were having this conversation earlier. [00:39:07] Speaker 03: Can I take you at the outset to the second question on the statutory application statute, which is the two that Chinese defense industrial base, that part of it. [00:39:19] Speaker 03: So the report has a separate heading that says DJI contributes to the Chinese defense industrial base. [00:39:25] Speaker 03: Now let's suppose that we have a case in which there's nothing classified. [00:39:28] Speaker 03: So we don't even have to worry about redactions or anything. [00:39:32] Speaker 03: And the case is just like this one and it says DJI contributes to the Chinese defense industrial base and there's literally nothing after it. [00:39:39] Speaker 03: And then somebody says, well, wait a minute, there's just nothing here. [00:39:44] Speaker 03: And it gets to court. [00:39:47] Speaker 03: And then what happens, how can an APA challenge to that not succeed if there's literally nothing that comes after just the conclusion that DJI contributes to the Chinese defense industrial base? [00:39:59] Speaker 03: Would you take the position that then what should happen is that the court should look around to try to figure out whether it can piece together why the agency might have concluded that DJI contributes to the Chinese defense industrial base? [00:40:11] Speaker 02: I think it would depend, Your Honor, on what that agency decision said. [00:40:15] Speaker 02: In other parts, I think that hypothetical, as you know, is different from what we have here, because there is that classified reasoning that this court would be free to rely upon. [00:40:23] Speaker 03: I'm not sure which way that cuts, because if you have classified reasoning that's blacked out, then there's just a vacuum. [00:40:31] Speaker 03: Of course, the court can look at it. [00:40:35] Speaker 03: The district court did not. [00:40:37] Speaker 03: But it could be that what's behind the veil is just completely illogical. [00:40:43] Speaker 03: I'm not suggesting, and I know there's a presumption of regularity, I totally understand that. [00:40:47] Speaker 03: But my point is just that if it's truly behind a veil that nobody can look at, as in the hypo, where it literally says nothing. [00:40:57] Speaker 03: What if it said, let me just do it differently, DJI contributes to the Chinese defense industrial base, [00:41:05] Speaker 03: And then the explanation is, for reasons that DOD has concluded is the case, and if somebody wants to figure out what those reasons are, well, you should scan the rest of the record. [00:41:18] Speaker 02: that would be more problematic than what you have here, Your Honor, but I think it's not just like scanning the rest of the record or the administrative record to look for those reasons. [00:41:26] Speaker 02: The district, the department's decision here, even if you look at the 10 to 15 page decision that you have before, it contains all of the reasons that this report relied on, the department relied on. [00:41:36] Speaker 02: And I think Judge Wilkins was referencing earlier the summary in that report and sort of the, if I can take a step back. [00:41:43] Speaker 03: It doesn't tell us what the reasons [00:41:48] Speaker 03: that DOD concluded that DJI contributes to the Chinese defense industrial base. [00:41:54] Speaker 02: So the summary explains that, as Judge Wilkins was explaining, that DJI produces this drone and camera technology. [00:42:02] Speaker 02: And there's a separate section of the department's decision that explains what it means to produce that drone and camera technology, what that drone and camera technology does, how it's sold to other militaries around the world. [00:42:13] Speaker 02: other, and so that is relevant to the agency's determination. [00:42:18] Speaker 02: And I think it is entirely proper in this case with this decision for the court to look to that reasoning, even if it's not under that particular heading because- No, but how does it, the fact that it's not below that heading seems like it could well matter because suppose what's below the heading is [00:42:39] Speaker 03: Notwithstanding anything else that's in this report, here's our explanation of why DJI contributes to the Chinese defense industrial base. [00:42:46] Speaker 03: Well, then we know that we shouldn't, at least for chenry purposes, we wouldn't be looking at elsewhere in the report. [00:42:52] Speaker 02: I think, Your Honor, I can't speak to what's below the heading, but I think it would be proper to look at the department's reasoning as a whole, because what this court is looking at is the propriety of the agency's determination that DJI is a Chinese military company. [00:43:06] Speaker 02: That's a determination that has these different parts. [00:43:08] Speaker 02: whether it's either owned by or is a military civil fusion contributor, whether that contribution is to the Chinese defense industrial base. [00:43:15] Speaker 02: And it's proper for this court to look at all of the determinations that are in that 10 to 15 page report and the record below it. [00:43:22] Speaker 02: I don't think there's any reason this court has to limit itself to what's beneath that heading. [00:43:25] Speaker 02: If that were the case, then what that would mean is that if there's some fact- I don't think I disagree with you that [00:43:32] Speaker 03: The court shouldn't limit itself because you have to take into account the explanation in context and you have to consider it in light of the entire report. [00:43:39] Speaker 03: I don't disagree with you on that. [00:43:41] Speaker 03: I guess what seems to raise the question is there is something under the heading, but the case has been litigated on the assumption that what's under the heading doesn't matter. [00:43:54] Speaker 03: And that just strikes me as tough when it's an APA challenge, because what's under the heading is definitely the first thing that one would look at in the normal course. [00:44:04] Speaker 03: Yes, you would look at the entire report. [00:44:06] Speaker 03: I don't dispute that for one moment, but the idea that there is an explanation, but that explanation just shouldn't matter whether the DODs [00:44:17] Speaker 03: application of the provision should be sustained, should depend on anything, everything other than what's under that heading just strikes me as an odd way to do APA. [00:44:28] Speaker 02: So I wouldn't say that we've taken a position that what's under the heading doesn't matter and this court, as you will know, is free to look at that and has the record before and has that agency decision in unredacted form. [00:44:41] Speaker 02: It's that [00:44:42] Speaker 02: because it is appropriate for the court to look at the evidence and the record and the administrative record and the other parts of the department's decision, what the district court did here was proper, which is it looked at that evidence that's in other parts of the decision and said, look, this is sufficient to uphold the department's conclusion that DJI contributes to the Chinese defense industrial base. [00:45:06] Speaker 02: I don't think that's just claiming the relevance of what's under the contributions to the Chinese defense industrial based heading that simply as you said earlier, looking at that context and saying that supports that conclusion and in other words, there's like ample evidence and all that evidence taken together is enough. [00:45:23] Speaker 03: That sounds kind of like sufficiency review, which, you know, if it's a sufficiency evidence case, I could see that. [00:45:30] Speaker 03: But for APA review, it's supposed to be trained on the actual reasons that the agency gave. [00:45:34] Speaker 03: And that's what makes it a little difficult to say. [00:45:36] Speaker 03: If you look elsewhere, you'll see that the finding can be substantiated based on all of this, because the way that the case, the posture of the case now, it's in a vacuum to some extent, because we don't know [00:45:50] Speaker 03: that that's, in fact, what the decision rested on, what's elsewhere in the document. [00:45:55] Speaker 03: It might well be sufficient. [00:45:57] Speaker 03: I mean, maybe one could even stipulate to that for purposes of this exchange. [00:46:01] Speaker 03: But it's tricky with APA review when we're supposed to be looking at the reasons, in fact, given. [00:46:09] Speaker 02: And I don't mean to repeat myself, but just to kind of take a step back, this court would be free to look at that reasoning below the heading because of the standard of review here. [00:46:19] Speaker 02: to kind of better understand what the district court did here is we don't understand it as disregarding that what we understand the district court did is it looked at sort of two buckets of reasoning or two kinds of reasoning first it said look the nature of the drone technology the nature of the technology we're talking about the nature of the product we're talking about here is drone technology which has this sort of substantial military application and that's detailed in this report under a separate heading that discusses dji's development of drone and camera technology and that the [00:46:46] Speaker 02: points to evidence in the record, I think around 896, that describes the effects in the use of drone technology in military settings. [00:46:55] Speaker 02: Looking at the nature of this technology, the department concluded [00:47:01] Speaker 02: that there is a contribution to the Chinese defense industrial base. [00:47:04] Speaker 03: And so the way you've laid it out, I mean, I think it's consistent with this assumption, but I just want to make sure you don't disagree with it, that we ought to operate on the assumption that the district court reached the conclusion that DJI contributes to the Chinese defense industrial base is satisfied without looking at the explanation that was given in the report. [00:47:27] Speaker 02: That is what the district court did. [00:47:29] Speaker 02: I mean, the district court disclaimed reliance on anything classified. [00:47:32] Speaker 02: So I agree with your honor on that point. [00:47:35] Speaker 02: And I think that was proper given the nature of this report where there are some of the evidence is repeated in the report. [00:47:42] Speaker 02: Some of the conclusions are overlapping as to the nature of the drone technology and its relevance to the military sphere. [00:47:50] Speaker 02: And so the overlapping nature of the evidence, the fact that the same evidence [00:47:53] Speaker 02: could be relative to different conclusions in the department's termination made it entirely proper for the district court to look at bullet points and paragraphs that came later in the department's decision or aspects of the administrative record that were unclassified, including the articles that the district court cited to uphold the department's termination on this point. [00:48:13] Speaker 05: So let's suppose that the area under DJI contributes to the Chinese defense industrial base. [00:48:25] Speaker 05: Let's suppose that's unclassified and we can see that. [00:48:28] Speaker 05: And it says something that is really like illogical. [00:48:34] Speaker 05: It says because DJI is just a successful company that [00:48:43] Speaker 05: is affiliated with China, we think that that in and of itself contributes to the Chinese defense industrial base, whether they made drones or whether they made batteries or widgets. [00:49:00] Speaker 05: And so based on that, that's what we are resting our finding. [00:49:06] Speaker 05: So that's what in my hypothetical, that's what is said in that paragraph that's redacted. [00:49:13] Speaker 05: And let's suppose we don't think that that meets the statutory standard. [00:49:21] Speaker 05: Wouldn't it be a chennery problem for us or the district court to go look elsewhere in the report and say, well, the nature of drone technology [00:49:32] Speaker 05: is such that, you know, there could be ample basis to say that it contributes to the... DJI contributes to the Chinese defense industrial base. [00:49:45] Speaker 05: Wouldn't it be problematic for us to say, well, the reason that they gave doesn't cut it, but we can find another reason somewhere in the report that does. [00:49:59] Speaker 05: Wouldn't that be a January problem? [00:50:02] Speaker 02: I think that in that case, there would be certainly an arbitrary and capricious problem that would be different from the problems that doesn't exist in this case. [00:50:11] Speaker 02: And there might be a problem, a Chenery problem that would emerge or at least be more apparent because of the inconsistency between what that hypothetically redacted paragraph said and what the district court concluded here looking at, let's say, what you're saying is outside. [00:50:25] Speaker 05: So if the district court doesn't look at this redacted paragraph, how does the district court know that it's not just gobbledygook behind those redactions that don't really support this? [00:50:46] Speaker 05: And if that's the case, then... [00:50:52] Speaker 05: isn't there a chennery problem to look elsewhere in the report and say, okay, that supports the fund? [00:50:58] Speaker 02: Sure. [00:50:59] Speaker 02: I don't think we think there's a chennery problem here and looking at other parts of the report because these reports report aren't sort of entirely separable. [00:51:08] Speaker 02: As I've been explaining, they are overlapping. [00:51:10] Speaker 02: They're referencing similar evidence, all of it sort of compounding and sort of building on each other about the nature of DJI's [00:51:19] Speaker 02: drone technology that's producing its contributions to the Chinese defense industrial base ties to the Chinese government. [00:51:26] Speaker 02: The benefits that's receiving it's because of the nature of this decision. [00:51:29] Speaker 02: There might be other kinds of agency decisions where one subheading is entirely separate and unrelated to another subheading. [00:51:36] Speaker 02: That's not the kind of subheading we have report we have here. [00:51:39] Speaker 02: I think another way of thinking another way we know that this is not [00:51:41] Speaker 02: that kind of a report or context of that statutory context matters and this is not to sort of go on to a different topic but it's a question that traditionally Boston asked earlier which is sort of about whether being a military civil fusion contributor to the Chinese defense industrial base is in fact an entirely separate analysis. [00:52:02] Speaker 02: We've discussed in our brief that point as a separate point of analysis, because that's how the district court approached it. [00:52:08] Speaker 02: And it's consistent with how this decision is structured by the agency. [00:52:12] Speaker 02: But if you look at the statute, and that's fine. [00:52:13] Speaker 02: And we have no objection to this court analyzing the question the same way. [00:52:17] Speaker 02: But if you look at the statutory language, what Congress wrote was it directed the agency to identify a military-civil fusion contributor to the Chinese defense industrial base. [00:52:28] Speaker 02: And then it defined, in a series of itinerary definitions, [00:52:31] Speaker 02: the term military civil fusion contributor and we you know in the first part of our brief we explain why the NETC designation assistance received by DJI satisfies that definition so which would then satisfy the term military civil fusion contributor leaving only the question of whether that contribution was [00:52:51] Speaker 02: to the Chinese defense industrial base. [00:52:54] Speaker 02: I parse these words out not to make this a complicated statutory question, but to sort of reinforce the point that these determinations are overlapping, whether an entity is a military civil fusion contributor, and then whether that contribution is to the Chinese defense industrial base, even in the statutory language, the word contributor appears in some senses twice. [00:53:13] Speaker 02: And so it makes sense then to think about, to read the agency decision, understanding this is all one long [00:53:20] Speaker 02: sort of one long analysis looking at where all the evidence can. [00:53:24] Speaker 02: It's fair to look at the evidence under a different heading as probative and relevant to other parts of that statutory determination. [00:53:30] Speaker 03: All of this evidence is going to... That definitely seems right. [00:53:33] Speaker 03: And I take the point about contributor because the Venn diagrams overlap on contributor, which kind of cuts in both directions. [00:53:39] Speaker 03: And it seems like it may well be the case that whatever evidence supports the first part of it, the military, civil, [00:53:47] Speaker 03: military civil fusion contributor could also bear maybe to a material extent, maybe to a dispositive extent on whether it's also a contributor to the Chinese defense industrial base. [00:53:57] Speaker 03: But the way you've spelled it out now, I don't understand you to be taking the position that is in fact totally redundant, that there's nothing separate to the Chinese defense industrial base part of it. [00:54:10] Speaker 02: That's right, Your Honor, and I don't mean to say it's entirely redundant. [00:54:14] Speaker 02: I just think this is another reason why it's not a chennery problem, and another reason why it's fair for the district court and this court to look at the evidence on these other pages of the department's decision. [00:54:26] Speaker 02: And I'll run through it super quickly just some of that relevant evidence and other parts of the department's decision that we've highlighted. [00:54:32] Speaker 02: There is obviously that section on DJI's development of drone and camera technology. [00:54:37] Speaker 02: that the purchase by the Ukrainian defense ministry of DGI drones, 27 and a half million of it, there's discussion on pages four and five of the use of DGI drones by the PLA to develop [00:54:51] Speaker 02: additional technological inventions discussion on page five of the National University of Defense technologies and DJI drones to develop and patent additional inventions. [00:55:00] Speaker 02: So I'm not saying you need to look or rely on all of that. [00:55:03] Speaker 02: I think the district courts sort of simpler reasoning more than suffices to uphold the contributions [00:55:08] Speaker 02: to the Chinese defense industrial base analysis, but there is plenty there that sort of is overlapping. [00:55:14] Speaker 06: I just ask about the district court's rule, as I understand it, is so long as you have a product that has a substantial non-theoretical military application somewhere, that's enough. [00:55:30] Speaker 06: There doesn't need to be any connection to the Chinese defense industrial base under the district court's analysis. [00:55:37] Speaker 06: Is that [00:55:39] Speaker 02: The definition that the district court applied and sort of the definition that it quotes from its earlier decision in the Hsai case is similar to what your honor is setting out. [00:55:49] Speaker 06: Why wouldn't there have to be some kind of a nexus to the Chinese industrial base? [00:55:55] Speaker 02: You're right your honor that there would need that there would need to be that kind of a nexus here and we think that there is enough evidence in the in the department's decision of that nexus. [00:56:03] Speaker 02: There's the there's evidence of substantial military application in exactly the way the district court explained. [00:56:11] Speaker 02: in the use of these drones in warfare and the Russia-Ukraine conflict, in the obvious military application of this kind of drone technology just writ large as set forth in the articles in the record around, I think, 296 about the use of drone technology in military settings. [00:56:27] Speaker 02: And then there's evidence of DJI's ties to the Chinese defense industrial base. [00:56:31] Speaker 02: as we've set forth in our brief, through sort of, again, what I was describing earlier, this overlapping evidence throughout the record and throughout the decision, the DJI has ties to the Chinese military industrial planning apparatus. [00:56:45] Speaker 02: It received this special designation, was selected by Chinese military planners for this designation as an NETC. [00:56:52] Speaker 02: What the purpose of this [00:56:54] Speaker 02: And this entity is Chinese government body that bestows this designation seeks to identify companies that were economic advancement and progress will help the military establishment in China. [00:57:05] Speaker 02: That's what [00:57:06] Speaker 02: the national development reform commission does. [00:57:08] Speaker 02: It's part of the state council and bodies that do this. [00:57:12] Speaker 02: There's evidence of other ties to the Chinese state as Judge Wilkins was describing earlier. [00:57:16] Speaker 02: I think all of that in this case at least provides evidence not only of a substantial military application, but that nexus to the Chinese defense industrial base. [00:57:26] Speaker 02: And so I think that's sufficient here. [00:57:28] Speaker 02: I think the specific wording of the district court's definition in his side that it applied here doesn't include the word Chinese as perhaps it should, as Your Honor points out. [00:57:38] Speaker 02: But there's ample evidence of that here. [00:57:39] Speaker 02: So I think you get all of it when you look at the department's reasoning here. [00:57:45] Speaker 03: Can I take you then to the other part of this issue, the overlapping, but other part, military-civil fusion contributor? [00:57:54] Speaker 03: And so there's the unclassified bullet on two cents of the appendix that says DJI benefits from the NEPC qualification through tax breaks, free cash subsidy, this is an interest for state-owned capital. [00:58:09] Speaker 03: So are you relying on that as the receiving [00:58:15] Speaker 03: assistance or are you saying that just by virtue of the N.E.T.C. [00:58:21] Speaker 03: designation that's receiving assistance doesn't even matter that the consequence of getting the N.E.T.C. [00:58:29] Speaker 03: qualification is that there's available apparently tax breaks, free cash subsidies. [00:58:37] Speaker 02: So the department's decision here is relies on the benefits that the N.E.T.C. [00:58:41] Speaker 02: qualification entitled DJI 2 which are [00:58:44] Speaker 02: where the citation here is to that page on 649 of the JA. [00:58:49] Speaker 02: I think on the question of whether the designation alone would suffice, that's not what the department has said in its decision. [00:58:56] Speaker 02: It's not the reasoning that we're defending here, but I think it would suffice probably. [00:59:01] Speaker 02: The department has taken a position on that, but I think it's helpful to look at the statutory language here and in the amended statute at G3A, which is the section that contains the knowingly receiving assistance prong now. [00:59:13] Speaker 02: the the Congress in amending the statute made clear that selection or designation as an enterprise associated with industrial planning or or military civil fusion efforts would in fact suffice as knowingly receiving under the amended version of the statute and so to the extent there's any question about [00:59:33] Speaker 02: whether these benefits are being received, and whether the benefits are assistance, and whether they're ongoing, the fact that the designation itself is clearly exactly the kind of conduct that Congress intended to capture in this provision. [00:59:45] Speaker 02: It's, I think, a useful background point. [00:59:48] Speaker 03: But for purposes of the arguments before us now, you're not taking the position that the designation alone, you're not taking the position that the [00:59:59] Speaker 03: the department's determination should be sustained based on the designation alone. [01:00:05] Speaker 02: The department's determination need not be sustained on that basis because of the record record evidence and because of the way the department arrived at this decision because the record evidence made clear that [01:00:17] Speaker 02: receiving this NETC designation being conferred with a special recognition automatically entitles you to these cash subsidies from the central government, from provincial governments, to tax benefits, to eligibility, to other kinds of policy benefits, again, from both the central government and from other sub-central governments. [01:00:37] Speaker 02: That was why the department arrived at this conclusion that DJI benefits from that qualification. [01:00:42] Speaker 02: And so there was essentially like too much evidence here or more evidence than just the designation. [01:00:47] Speaker 03: And do you think that wouldn't matter if all of that expired at the end of the year and it had to be re-upped in order for those benefits to be sustained to the next year? [01:00:56] Speaker 02: So there wasn't any, if that were the case that would be a different case but the record evidence here didn't say that all that expired, DJI hasn't proffered any evidence that all that expired hadn't made any of that those arguments or provided any deprivation saying so in district court or in this court in the court in its briefing. [01:01:12] Speaker 03: But does the [01:01:13] Speaker 03: Is there record evidence that we should take note of that says that it doesn't expire? [01:01:18] Speaker 02: There's no evidence on the time frame sort of as Your Honors, I think both Judge Garcia and you were pointing out earlier, there isn't evidence about sort of how long this recognition lasts. [01:01:28] Speaker 02: I think I'll make one kind of point that there is to the extent [01:01:32] Speaker 02: any inference needed to be drawn, a lot of these kinds of policy benefits, subsidies, tax benefits, so on, that are described in this article, not just at the top where it's talking about DJI, but sort of throughout, appear to be the kinds of assistance and benefits that would have sort of long-running beneficial effects or assistance. [01:01:50] Speaker 02: This is the article cited in the footnote? [01:01:51] Speaker 02: This is the article cited in the footnote that we cite in our brief for this point. [01:01:54] Speaker 02: There's one article. [01:01:57] Speaker 02: it would be reasonable to infer that there are ongoing benefits from this designation to the extent you're receiving sort of 5 to 15 million or so forth. [01:02:06] Speaker 02: But there is no time frame set forth in the article itself. [01:02:12] Speaker 03: Make sure my colleagues don't have additional questions. [01:02:15] Speaker 01: OK. [01:02:16] Speaker 01: OK, thank you. [01:02:16] Speaker 01: Thank you, counsel. [01:02:17] Speaker 01: We'd ask the court to affirm. [01:02:18] Speaker 00: Thank you. [01:02:24] Speaker 03: Mr. Schaffer will give you three minutes for rebuttal. [01:02:26] Speaker 04: Thank you very kind, Your Honor. [01:02:27] Speaker 04: Let me start where you finished just in terms of the new statute versus old statute. [01:02:30] Speaker 04: Judge Friedman was very clear. [01:02:31] Speaker 04: He was relying upon the old statute, which is what DOD had listed DJI under. [01:02:36] Speaker 04: That's footnote three of the decision that's before Your Honors. [01:02:39] Speaker 04: And that was because DOD had argued it that way. [01:02:42] Speaker 04: and they had made their rationale as your honor was noting under the prior statute if they were operating under the new statute then they would have had to provide a public justification for listing DJI as they did they didn't do that when the when the designation was first made so they would have that problem under the new statute we've let go of that your honors because we've just said okay this is being decided under the old statute as it was by the district court last point chief judge this [01:03:06] Speaker 04: new statute doesn't speak to the question we were focused on, whether you need to have assistance apart from the award. [01:03:12] Speaker 04: It just says that if you receive it under a different type of award, you receive assistance through that award, that will suffice. [01:03:19] Speaker 04: It doesn't say that the award itself is the assistance. [01:03:22] Speaker 04: I think it still falls to DOD to have substantial evidence that there was actual assistance. [01:03:27] Speaker 04: Let me turn to the other point though, your honor, is about contributions to the Chinese Defense Industrial Base. [01:03:32] Speaker 04: I just want to emphasize that everything under the heading is, in fact, blacked out. [01:03:39] Speaker 04: None of it was reviewed by Judge Friedman. [01:03:41] Speaker 04: He was very clear about that. [01:03:42] Speaker 04: He never went to a skiff. [01:03:43] Speaker 04: He never accessed the classified record. [01:03:46] Speaker 04: He's never seen it, so far as the record reflects. [01:03:48] Speaker 04: And he deemed our motion to compel the classified evidence moot simply because it played no part in his decision. [01:03:54] Speaker 04: So one problem, I think Chief Judge Trenavastan is the chennery problem. [01:03:59] Speaker 04: that whatever DOD has as its operative rationale, we're all blind to that right now, unless you look at the classified evidence. [01:04:06] Speaker 04: But another problem you have, as DOD now through council tries to cobble together the rationale, you can find it in this portion of the report, you can find it in that other heading. [01:04:16] Speaker 04: Well, Your Honor, if unclassified portions of the record supply DOD's operative rationale, why was it all classified? [01:04:25] Speaker 04: Wouldn't we have been entitled under that theory of DOD's rationale to see that they're saying about DJI for this purpose, things that they've said about DJI for other separate statutory purposes? [01:04:38] Speaker 04: You just cannot, I think, credit this as a principled classification. [01:04:44] Speaker 04: and also say it comes from it is replicated in other portions of the report. [01:04:50] Speaker 04: That is another reason why I don't think you can do what DOD's council is urging you to do and kind of cobble together the rationale elsewhere. [01:04:59] Speaker 04: And the discussions that you're having right with DOD are critically important. [01:05:03] Speaker 04: Is it Judge Wilkins just about widgets? [01:05:05] Speaker 04: Is it that's good enough if there are widgets that a military might ever purchase? [01:05:10] Speaker 04: Is it the fact that widgets were purchased by the Chinese military? [01:05:14] Speaker 04: Is it the fact that these widgets have particular military uses? [01:05:18] Speaker 04: We don't know. [01:05:18] Speaker 04: I don't know what exactly is DOD's rationale and I think that's critically important to your honor's decision in this case and also critically important to other regulated entities that are trying to understand how DOD comes to the rationale that it does. [01:05:32] Speaker 04: But last point, Your Honors, we're not demanding the impossible of DOD. [01:05:37] Speaker 04: All they need is substantial evidence that connects the dots that we were talking about with respect to assistance. [01:05:41] Speaker 04: They have that substantial evidence. [01:05:43] Speaker 04: There are just gaps in the record as we were discussing earlier. [01:05:46] Speaker 04: And for this purpose, contributions to the Chinese defense industrial base, if they want to bottom line it and say, here is why we're finding that, they can provide that in an unclassified way that we can review and challenge and that your honors can review. [01:06:00] Speaker 04: You don't have that in this case. [01:06:01] Speaker 04: You should insist upon that before you uphold a list like this. [01:06:04] Speaker 04: That's our respectful submission to your honors. [01:06:07] Speaker 03: Thank you, Council. [01:06:08] Speaker 03: Thank you to both Council. [01:06:09] Speaker 03: We'll take states under submission.