A federal judge has blocked the application of the US investment ban in Xiaomi Corp.
, calling the decision to blacklist the Chinese tech giant “deeply flawed.”
By ordering a temporary halt to the ban in a decision late Friday, Judge Rudolph Contreras cast doubt on the Pentagon’s decision in January to designate Xiaomi as a company with ties to the Chinese military. Judge Contreras said the United States did not convincingly display such links in previous court filings.
“Xiaomi is a publicly traded company that produces commercial products for civil use, is controlled by its independent board and majority shareholders, and is not effectively controlled or associated with others owned or controlled by the People’s Republic of China or its services security, “said the judge. he said in the opinion, using the abbreviation for the People’s Republic of China.
Xiaomi said it was satisfied with the judge’s ruling and said it would seek permanent removal of the investment ban. The Pentagon did not immediately respond to a request for comment.
The decision marks a victory for Xiaomi after its addition, in the last days of the Trump administration, to the list of the United States Department of Defense of companies that it believed were linked to the Chinese military. The decision prevented Americans from investing in the company, the world’s third-largest smartphone seller.
The designation caught many company observers by surprise, given the company’s strong focus on consumer electronics. The company, which denies any military ties, filed suit in the United States District Court in Washington, DC, seeking to revoke the designation.
The Defense Department then justified its decision by citing an award given to its founder, Lei Jun, in 2019 for his service to the Chinese state, as well as the company’s ambitious investment plans in 5G and artificial intelligence.
But the US court’s decision on Friday called that rationale flawed, noting that more than 500 entrepreneurs have received a similar award. He also said that 5G and AI “are rapidly becoming the industry standard for consumer electronic devices” and investment in the technologies does not necessarily suggest a military link.
While the ruling only grants Xiaomi a pardon, Judge Contreras said the Defense Department’s decision had caused Xiaomi irreparable harm and said the company was likely to prevail to win a full reversal of the investment ban. Xiaomi’s shares have fallen dramatically in the wake of its blacklisting, and it was scheduled to be removed from major exchanges and stock indices.
The decision is another courtroom setback in the Trump administration’s campaign against China’s tech sector. Last year, two federal judges temporarily suspended the ban on American downloads from the Chinese social media app TikTok, saying the United States exceeded its authority.
Other Chinese companies have waged legal fights in the US in response to the Trump administration’s actions with less success. For example, a US judge dismissed a lawsuit by telecommunications giant Huawei Technologies Co. last year that sought to overturn a US ban on its products. Huawei is still pursuing legal action in the US.
Write to Dan Strumpf at [email protected]
Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8
It appeared in the print edition of March 13, 2021 as ‘The judge blocks the ban on investing in Xiaomi’.