Alibaba Sues Pentagon Over Designation as US Tech Scrutiny Intensifies

Alibaba Sues Pentagon Over Designation as US Tech Scrutiny Intensifies​

Chinese technology giant Alibaba has initiated a major lawsuit against the US Department of Defense (DoD). The company is seeking removal from the DoD's critical list, which designates entities affiliated with China’s military and defence industrial base.

The designation, first announced on June 8, places significant reputational costs on companies listed. It prevents these entities from securing certain US defence contracts. Alibaba filed its petition in the San Jose division of the US District Court for the Northern District of California this week.

Grounds of Lawsuit: Challenging Pentagon’s Designation​

Alibaba contends that the DoD's decision lacks both "basis in fact or law." The company further argues that the designation was not reached through a fair process.

In its petition, Alibaba stated that the listing has severely impacted its operations and led to losses among US-based backers. The company emphasized that maintaining trust with its American partners is crucial for its business model.

Allegations by Pentagon and Alibaba’s Rebuttal​

The DoD alleges that Alibaba maintains an indirect affiliation with China’s State-owned Assets Supervision and Administration Commission (SASAC). The Pentagon also claims the company contributes to China’s defence industrial base through connections with the Ministry of Industry and Information Technology.

Alibaba vehemently rejected these allegations in its legal filing. The company asserted it is governed by an independent board and possesses no military certification or license. It denied any relationship with SASAC.

Business and Regulatory Compliance Concerns​

Regarding compliance requirements, Alibaba argued that adherence to the Ministry of Industry and Information Technology is a mandatory requirement for all companies operating in China, including those based in the US. The company stated plainly in its petition, "A regulator is not an affiliate."

This legal action represents one of several challenges mounted by Chinese firms against the DoD's national security designations. The current list includes 188 entities. These range from state-owned defence businesses to private technology companies like Alibaba and Unitree.

Broader US China Tech Conflict Escalates​

The lawsuit comes amid a growing dispute between the US and China concerning technology, defence, and industrial supply chains. This tension is evident as Beijing recently announced sanctions on 10 American military-related companies.

Another prominent company on the DoD's list is WuXi AppTec Co. This firm provides research, development, and manufacturing services to US pharmaceutical and life sciences firms. The Pentagon claims that WuXi AppTec is indirectly owned by SASAC and affiliated with China’s State Administration of Science, Technology and Industry for National Defence and the People’s Liberation Army.

Precedent Set in Tech Scrutiny​

WuXi AppTec has also challenged its designation through a petition filed on June 11 in the federal district court in the District of Columbia. The company contends that the decision is based on "political pressure and unsupported assertions," which has caused and will continue to cause irreparable harm.

This dispute follows previous scrutiny, including a case involving DJI Technology, the Chinese drone maker. A US judge ruled against DJI last year when it sought removal from the Pentagon's list; DJI has subsequently appealed that ruling.