Hesai Contests DOD's 'Absurdly Broad' Reading of Chinese Military Designation
Chinese lidar company Hesai Technology filed its opening brief in its appeal of its case contesting its designation as a "Chinese military company," arguing that the Pentagon adopted an "absurdly broad reading of" the law, Section 1260H, and that the lower court "adopted a capacious view of the [Defense] Department's listing authority and a cramped view of Hesai's obvious prejudice" (Hesai Technology v. U.S. Dep't of Defense, D.C. Cir. # 25-5256).
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In July, the U.S. District Court for the District of Columbia upheld Hesai's designation as a Chinese military company under the Pentagon's 1260H List (see 2507140061). The court pointed to DOD's finding that Hesai resides in or is affiliated with a "military-civil fusion enterprise zone," which is one of the seven sections under Section 1260H detailing how an entity can be designated as a "military-civil fusion contributor."
On appeal at the U.S. Court of Appeals for the Federal Circuit, Hesai challenged the legal conclusions of both the Pentagon and the D.C. federal district court. The lidar company said DOD determined Hesai is a military-civil fusion contributor to the Chinese defense industrial base "solely because Hesai supposedly manufacturers 'dual-use' products."
Hesai said this reading of Section 1260H "conflicts with the ordinary understanding of the phrase 'contributor to the Chinese defense industrial base,' which means an entity that affirmatively assists or supplies the Chinese government (directly or indirectly) with materials, products, or services for defense purposes -- something Hesai undisputedly does not do and has never done."
The government's reading "sweeps any technology company (and most other types of companies) within Section 1260H's ambit," and gives the Pentagon "virtually unfettered discretion to blacklist virtually any company with a Chinese presence that the agency chooses -- including many well-known U.S. and international companies lacking any meaningful connection to the military," the brief said.
Hesai added that it doesn't even satisfy this "overbroad reading" of the statute, since the Pentagon "offered no research studies, expert analysis, classified information, interagency discussions, public comment, or the like" to justify its conclusion that Hesai makes dual-use products with "substantial" military uses.
The D.C. district court compounded DOD's errors by granting summary judgment, "effectively" adopting the agency's reading of Section 1260H, then "misapplied that standard to the record," the brief said. Hesai faulted the court for "relying primarily on an online magazine article that, in the court’s own words, was 'perplexing[ly]' omitted from the Amended Designation and its accompanying administrative record."
The court also "brushed aside" DOD's "flagrant disregard of Hesai’s due process rights because it concluded incorrectly that any violation was 'harmless,'" the brief said. The district court ignored the D.C. Circuit's "plain admonition in the redesignation context that courts 'cannot presume' that a challenging party could not 'have offered evidence which might have either changed the [agency’s] mind or affected the adequacy of the record,'" Hesai argued.