Legal issues arising from the adoption of Unmanned Aircraft Systems

August 2015  |  TALKINGPOINT  |  LEGAL & REGULATORY

financierworldwide.com

FW moderates a discussion on the legal issues arising from the adoption of Unmanned Aircraft Systems between Thomas L. Gemmell, a partner at Husch Blackwell LLP, Rebecca MacPherson, counsel at Jones Day, and James Lawrence, a partner at Piper Alderman.

FW: Could you provide an insight into the more promising commercial uses of Unmanned Aircraft Systems (UAS)? Is this technology likely to see considerable growth over the coming years?

Gemmell: The range of potential uses of UAS is as expansive as human thought. If you can think of a way to use UAS, it either has been done or will be done in the near future. While much of the recent attention has focused on Amazon seeking to use UAS to deliver packages, research conducted by the Association for Unmanned Vehicle Systems International (AUVSI), the trade group that represents producers and users of UAS, concludes that agriculture – remote sensing and precision application – at 80 percent of the known potential markets, is the most promising commercial use. Based on the number of FAA exemptions that have been granted to date, the greatest interest in commercial UAS is in real estate, agriculture and construction. Other promising uses include energy, entertainment and scientific research. Undoubtedly we are at the very beginning of this emerging technology. The technology will certainly be growing, even exponentially, over the coming years, especially once rules governing UAS operations are implemented and technological challenges, such as endurance and autonomy, are solved.

Lawrence: Civilian UAS use has grown exponentially across a whole host of sectors in the past several years. UAS or ‘drone’ technology per se is not new, but it is the more recent combination with other technology, such as high resolution imaging, sensors and mapping hardware and software that presents new and exciting opportunities. UAS can provide real-time vision from previously inaccessible vantage points and reduce time and effort when applied to tasks which previously required more costly solutions. We are seeing a lot of activity specifically in the agribusiness, engineering, building & construction, film & television, delivery systems and public safety areas. It is almost certain that this technology will see further growth of a considerable level in the near future.

MacPherson: The most promising commercial use remains surveillance, which is what the technology is primarily used for today. Reasonably small scale package delivery sounds great, but I’m unconvinced that the business model will ultimately support it. However, UAS have a tremendous capacity to introduce safety and efficiency into current surveillance activities. Consider the cost associated with pipeline and railroad track inspection, and then think of the safety risk that those workers are exposed to. If companies could routinely deploy unmanned aircraft to inspect large stretches of infrastructure, they could increase efficiency, lower costs and reduce the risk of injury to their employees. What personally excites me is what these aircraft can do in terms of evaluating hazmat spills or major accidents, where it would be so much faster and safer to send in a UAS and then determine risk, as opposed to sending in people and hoping for the best.

FW: What technological limitations exist?

MacPherson: There are two significant technological constraints at this time. The first is the inability of UAS to see and avoid other aircraft. Many current models are already equipped with cameras that allow the operator to see what is going on from the viewpoint of the aircraft. But the FAA doesn’t believe this technology adequately replicates a pilot’s view from the cockpit – particularly a pilot’s peripheral vision. Until there is see-and-avoid technology that passes FAA muster, the agency won’t routinely allow operations beyond the operator’s visual line of sight. This restriction places a significant constraint on successful commercial operations. The second technological limitation is on the length of time the smaller UAS can stay in the air. Battery strength is often depleted within 15 to 30 minutes. However, stronger batteries are being developed for all types of consumer applications, and this shouldn’t be an intractable problem.

Gemmell: Significant steps have been taken to allow for the commercial use of certain small UAS at low altitude. But to truly integrate UAS into the national airspace and unlock the full potential of this technology, specifically as it relates to extended operations, beyond visual range, at any altitude, a number of persistent technological challenges must be overcome, foremost of which are endurance and autonomy. Endurance, particularly as it relates to rotor sUAS, is constrained by existing fuel and battery-charge technologies. Current lithium-ion polymer (LiPo) batteries provide flight times far less than that needed to meet expected commercial demands. Prospective technologies to meet this challenge include hybrid fuel-electric, solar and improved fuel cell technologies. The true benefits of UAS will come when they can operate autonomously. This requires UAS to be able to ‘see’ other objects and communicate with them to execute separation and avoidance protocols. The size and expense of current sense-and-avoid systems, however, are prohibitive of ubiquitous application. Solutions may be found in nanotechnology and improved ADS-B and sensor technologies, such as radar and cameras.

Lawrence: Many of the technological limitations that afflict traditional remote-controlled devices still present technological barriers in modern UAS usage. The power source is the most obvious limitation to flight time. While industrial UAS are often powered with petroleum-based fuel allowing for potentially greater flight time, most small to medium sized UAS are powered by battery. Even with recent developments in LiPo batteries, being a widespread battery choice for UAS given their high charge capacity and low mass, flight time will always be restricted by charge capacity. Other limitations include radio frequency (RF) restrictions such as the need to generally maintain line of sight and maximum distance to the controller. RF interference is also always an issue, particularly when using UAS in built-up areas. Where payload management is critical, there will always be the need to balance the desire to manage the payload mass and the resultant need to increase power, and therefore battery capacity or fuel load.

FW: What are some of the potential legal issues that might arise from a widespread adoption of UAS?

Lawrence: Privacy and safety issues are front and centre. Increasing use of UAS has already caught the eye of federal regulators – for example, the Australian Civil Aviation Safety Authority will soon release revised federal regulations governing the commercial use of UAS and the US Federal Aviation Administration is expected to release similar regulations later this year. With an increasing ability for UAS to utilise high-definition camera technology, there are concerns over personal privacy. While some jurisdictions, for example the United States, have well-developed privacy torts, some jurisdictions such as Australia do not – with privacy statute largely inapt. Liability for property damage or personal injury resultant from UAS mechanical, GPS or general systems failure is also likely to be a central issue following widespread adoption of UAS technology.

Gemmell: The legal issues resulting from widespread adoption of UAS are primarily those that currently exist, chiefly compliance and privacy. The current case-by-case approval process will soon be replaced by a framework that will allow anyone who follows the rules to fly UAS. Compliance with the conditions and limitations of exemptions granted today will be replaced by compliance with new UAS rules. Though similar, the sUAS rules, expected by the end of 2016, replace the current airman certification requirement with a UAS certificate and allow operations at higher altitudes and beyond visual range. The sheer number of UAS – over 30,000 – expected to be airborne upon rule implementation, heightens the need for compliance to ensure safe integration of UAS into the National Airspace System. Privacy will also remain a major legal issue, indeed even more so. Though voluntary privacy guidelines are to be coordinated, the NTIA’s ‘multi-stakeholder’ process promises to delay them well past the expected implementation of sUAS rules. Thus concerns of privacy, and data ownership, will become even more pronounced upon expanded commercial use.

MacPherson: Privacy continues to be a significant concern, although existing laws are likely sufficient to cover any challenges that a UAS operator violated an individual’s privacy. I’m not convinced there is a need for new laws, but the existing ones may need to be evaluated by the courts before there is sufficient comfort that they actually apply. A bigger concern should be personal injury actions. As the number of UAS in the national airspace increase, there will be mishaps and people will get hurt. The regulatory obligations currently fall exclusively on the operators of the UAS. However, manufacturers should expect to be pulled into any litigation, particularly since many of the UAS operators may have only limited resources to satisfy an adverse judgment.

FW: Do you anticipate regulatory challenges for multinational companies that use UAS in multiple countries?

MacPherson: Typically, you don’t see significant regulatory challenges in the aviation sector because the International Civil Aviation Organization (ICAO) sets minimum regulatory standards through the Chicago Convention so there is a lot of uniformity. UAS operations are covered by the Chicago Convention, but ICAO has not yet set meaningful standards. I think we will see much more variation in regulations governing UAS, and multinational companies will have to adjust. Some countries are going to accept a greater level of risk to reap the benefits UAS operations offer. Since these operations are likely to remain largely local in nature, there is little impetus for countries to endorse an ICAO standard that may be too strict to allow for meaningful development.

Lawrence: The need to ensure compliance with a multitude of national regulatory regimes is not something unique to UAS technology. Multinational pharmaceutical companies, for example, deal with myriad national regulatory regimes on a daily basis. Broadly speaking, the fundamentals of operating UAS – height and controlled airspace restrictions, proximity to people and structures and line-of-sight operation – are common throughout a number of major jurisdictions. Similarly, commercial use for hire or reward generally requires regulatory approval in the form of an operator’s certificate. There will be nuances in the approval processes as between jurisdictions, but I am not sure that this presents any greater difficulty than with regulatory regimes in the context of other technologies.

Gemmell: In the near term, multinational companies will continue to be challenged by disparate and often conflicting regulations governing the use of UAS. Though each jurisdiction will continue to regulate its own airspace – for example, the FAA will continue to be the authority in the United States and CASA will continue to be the authority in Australia – in time there is likely to be a coalescing around a single set of UAS standards, which should simplify things. Based on history with manned aviation and communications with the FAA, this coalescing is like to resolve around regulations promulgated in the United States. Though presently behind others in regulating commercial UAS, the US, driven by its economy and predicted lead in the global UAS market, is anticipated to take the lead. Accordingly, the FAA is taking a well-reasoned, incremental approach in developing its UAS regulations, considering regulations and practices in existence in the US and in other jurisdictions in order to arrive at a set of regulations that can be applied, or referenced as a baseline, globally.

FW: In the US, what barriers exist to the integration of civil UAS in the National Airspace System (NAS) roadmap?

Gemmell: In the FAA Modernization and Reform Act of 2012 (FMRA), Congress directed the FAA through the Department of Transportation to integrate UAS into the NAS by September 2015. While significant steps have been taken toward meeting this mandate, such as establishing the FAA’s UAS Integration Office, standing up UAS test sites, and promulgating proposed rules for small UAS, there remain a number of persistent technical and legal obstacles to full integration. On the technology front, the foremost challenges are in endurance and autonomy, specifically as they relate to battery life and sense and avoid. Absent solutions, such as advanced mitigation, allowing for the safe execution of longer endurance and autonomous flights, commercial UAS will continue to be restricted to low altitude, visual range operations. On the legal front, the challenges include meeting privacy concerns without stifling commercial efforts and unifying myriad disparate regulations based on platform, launch method, altitude and mission so there is consistent application across the spectrum to accommodate a mix of both manned and unmanned operations in the NAS.

MacPherson: The biggest barrier is the FAA’s reluctance to seriously explore integration for the next several years. The FAA’s current policy is one of segregation, not integration. The agency is doing its best to make sure that unmanned aircraft never come anywhere close to manned aircraft. I can understand the concern, but right now they aren’t even allowing integration among unmanned aircraft at altitudes well below where one would see manned aircraft. The FAA won’t let a small UAS operator operate more than one aircraft at a time, and it’s been reported that the FAA wouldn’t allow two unmanned aircraft in the air at the same time during the recent medical drop in Wise, Virginia – even though the second aircraft was tethered to the ground. Yet this was perhaps the perfect opportunity to allow a very controlled segregation in a practical situation.

Lawrence: US airspace is the busiest in the world and this presents immediate difficulties in integrating widespread UAS use. Several weeks ago, Australian company Flirtey, in partnership with Amazon, received the first FAA approval for official testing of package delivery via drone. These types of commercial service will necessarily involve longer-range travel using UAS technology. Beyond line-of-sight use is certainly an acute issue and brings with it concerns around public safety and the potential need for collision avoidance protocols, particularly in the crowded US NAS. As the FAA has noted, integrating civil UAS into the NAS also carries certain national security implications, which may include the need for security vetting for certification and training of UAS-related personnel and maintaining and enhancing air defence and air domain awareness capabilities in an increasingly complex and crowded airspace.

FW: What advice would you give companies in terms of addressing the legal issues associated with UAS, to manage the risks they face and maintain compliance?

Lawrence: Self-auditing is going to be vital for companies where UAS use is business-critical. Ongoing and regular safety checks, incident reporting and operator training for staff and contractors through the creation of corporate policy documents will help to minimise risk. The insurance industry is leading the charge through fostering the development of industry standards which are designed to set the benchmark in UAS operation. UAS operators who provide contactor services will also face a liability and indemnity tension in any contactor agreement. Navigating those issues, along with the issue of insurance cover breadth and level, will be front and centre in any contractual negotiations.

MacPherson: Insurance is key. Maintaining compliance won’t be that difficult as long as the companies accept that they are subject to the regulatory authority of a country’s civil aviation authority – in the case of the US, the FAA. There has been heated debate in the past couple of years over whether small UAS are aircraft, but Congress has definitively settled that issue. Yet there are still a lot of operators out there thumbing their collective nose at the FAA. That needs to change and the FAA needs to both adopt reasonable standards and actively take enforcement action against operators who violate those standards. Personal injury and property claims are going to be a much bigger issue in the long run, and those concerns are best addressed by following the applicable regulations and adequately insuring against the risk.

Gemmell: Seek competent counsel experienced in the myriad legal issues involved in UAS. Currently companies are not permitted to use UAS commercially in the United States without specific authorisation from the FAA. Most other jurisdictions also prohibit such operations absent authorisation. At the same time, under Section 336 of the FRMA – Special Rule for Model Aircraft – non-commercial or hobby use of UAS remains unregulated. Despite the FAA providing examples of the hobby/ commercial divide, there continues to be confusion as to permitted use. Those who misunderstand the law, or otherwise proceed to fly without FAA exemption, are subject to steep fines of $10,000 per incident. Further, those who are found in violation face an uphill battle if they seek thereafter to obtain the FAA’s permission. Therefore, the best course of action is to seek competent counsel to avoid the risk of adverse exposure and consequences. Once commercial UAS rules are in place, companies should still seek competent counsel to ensure their operations remain in compliance with the law as it continues to evolve to accommodate this emerging technology.

FW: What kinds of insurance solutions might be available to companies looking to mitigate risks related to UAS? Do you expect coverage in this area to develop considerably, going forward?

Gemmell: Frequently, companies are granted FAA exemption to operate UAS only to be stymied by other requirements, such as insurance. As UAS is an emerging technology, there is little guidance. Most insurers do not cover UAS operations. Others jerry rig their aviation policies to cover UAS but, upon closer examination, fail to adequately address liability associated with the proposed operations. As the industry has continued to mature, however, an increasing number of insurers have developed policies to cover insurance exposures presented by UAS. Other niche UAS insurers have also entered the market. In order to realise the new UAS-related business opportunities, a multitude of insurance liability and coverage options have been developed, ranging from personal injury and invasion of privacy to aerial surveillance and data collection. As many UAS operations are startups funded by investors, directors and officers liability insurance options have also been developed to cover risk of financial loss due to mismanagement. As carriers become increasingly more comfortable with this unfamiliar territory, as they did with insuring cyber liability, the capacity to underwrite such policies should also increase.

Lawrence: A number of insurers are already offering either tailored UAS and related aviation insurance solutions or sub-policies. Some jurisdictions, for example the EU, impose minimum insurance requirements on commercial UAS operators and so a number of different types of policies have already been developed to address the unique risks associated with UAS use. Further, although some jurisdictions like the Australian Civil Aviation Safety Authority do not presently prescribe insurance requirements for UAS operators, regardless of whether the use is commercial or personal, a number of established Australian insurers have already started issuing UAS-specific policies. The risks covered by these policies vary, with some companies providing tailored plans to meet the needs of particular UAS operators, but tend to include hull damage as well as third party liability. As the UAS sector grows, the types of risks covered by insurers, and their willingness to develop individualised insurance plans for particular UAS operators, is also likely to increase.

MacPherson: Some insurance companies already offer policies to small UAS operators. Manufacturers also appear able to get general liability insurance. What the insurers don’t yet know is whether they are writing sufficiently large policies and charging premiums that adequately fund those policies. That will all get worked out over time. Typically, policies won’t cover against intentional torts, so privacy challenges may be an area where the insurers won’t be able to adequately assess risk until the courts apply existing standards to UAS activities. The amount of coverage insurers are willing to provide will likely depend on whether the courts adopt pretty strict standards against the UAS operator or determine that liability for intentionally violating someone’s privacy requires evidence of egregious behaviour. At least initially, there may be significant variation among different jurisdictions.

FW: How do you expect legal issues around UAS to unfold in the years ahead, as companies look to exploit the varied opportunities this technology presents?

MacPherson: Much of the legal work has been focused on regulatory issues rather than commercial issues. We are seeing a lot of players and a lot of willingness to let others innovate. Companies are inwardly focused. How do they develop a product that consumers want? How do they make a profit? Can they ignore the regulators? I expect that focus will change as manufacturers, operators and regulators gain experience. The manufacturers and operators will start to look to their competitors and acting offensively. Given the large number of manufacturers out there now, expect to see consolidation through mergers and acquisitions. Right now, most of the intellectual property work appears to be filing patents. Manufacturers are defensively setting the stage for the patent litigation that will follow as they start seeing similarities in design and have the documentation to assert an intellectual property interest.

Gemmell: This is an emerging technology and the legal issues will continue to develop as the technology and its applications develop and mature. Currently there are no rules to allow businesses to easily move forward with commercial UAS. As a result, companies in the United States have increasingly turned to petitioning the FAA under Section 333 of the FMRA for exemption from rules and regulations governing manned aircraft. Authorisation has also been provided in limited circumstances under civil Certificates of Authorization or Waiver (COA). Once rules governing commercial UAS use are established, however, the legal issues should generally shift from obtaining authorisation to compliance with the new rules and regulations. Privacy and security concerns will also need to be addressed, and myriad disparate regulations will need to be unified so there is consistent application across the spectrum to accommodate a mix of both manned and unmanned operations in the NAS. UAS rules will also continue to evolve to accommodate lessons learned, including as the result of inevitable accidents, security breaches and acts of noncompliance.

Lawrence: To my mind, the nature of the legal issues that may arise will be driven by developments in the baseline UAS flight technology but perhaps more importantly the way in which UAS technology will couple with other technology. We have seen this already in the context of how high-definition, and now 4K, cameras present privacy concerns. Baseline flight technology has also improved with long distance beyond line-of-sight technology now common even in hobby UAS devices. GPS technology allows for ‘return-to-base’ functionality which introduces collision events in circumstances where a structure may impede the automatic operation of the ‘return-to-base’ function. With the rapid pace at which this technology is evolving, new legal issues are likely to arise at an equally rapid pace.

Thomas L. Gemmell is a partner at Husch Blackwell LLP and Co-Lead of the firm’s Unmanned Aircraft Systems team. As a former F-15 fighter pilot, he is proficient in UAS systems technologies, including precision targeting, data-link and encryption, as well as flight operations in the NAS and international airspace. Mr Gemmell represents clients across a wide range of industries, including energy, construction, GIS/mapping, agriculture, and movie and television, and is among the first to obtain exemptions from the FAA to allow for the commercial use of UAS. He can be contacted on +1 (312) 526 1523 or by email: tom.gemmell@huschblackwell.com.

Rebecca MacPherson is counsel in the Washington, DC office of the international law firm Jones Day. Ms MacPherson advises clients in the transportation sector, with particular focus on strategic and regulatory issues in the aviation and automotive sectors. Prior to joining Jones Day in 2013, Ms MacPherson served as assistant chief counsel for international law, legislation and regulations at the Federal Aviation Administration. She can be contacted on +1 (202) 879 4645 or by email: rmacpherson@jonesday.com.

James Lawrence is a partner in the Sydney office of Piper Alderman, a leading national Australian law firm. Mr Lawrence advises on all aspects of intellectual property (IP) law and has extensive experience across a range of IP litigation, patents, copyright, trademarks/brand protection and misuse of confidential information/trade secrets. He also advises on IP commercial matters, including in relation to structuring IP/know-how licensing arrangements, advising on IP aspects of corporate transactions, IP portfolio management and policy. He can be contacted on +61 2 9253 3880 or by email: jlawrence@piperalderman.com.au.

© Financier Worldwide

THE PANELLISTS

Thomas L. Gemmell

Husch Blackwell LLP

Rebecca MacPherson

Jones Day

James Lawrence

Piper Alderman