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Drones (a/k/a Unmanned Aircraft Systems): A 21st Century (Regulated) Gold Rush

1. UASs

The days of unmanned aircraft systems (UASs), commonly known as drones, being thought of as the 21st Century version of an, at times, annoying model airplane or toy have passed. While the consumer drone market continues to grow, the commercial market and military/civil government applications have flourished. A recent Goldman Sachs business and investment analysis of the industry forecasts a $100 billion drone market by 2020 (by comparison, as our earlier article noted, the potential explosive growth in the cannabis industry during the same period is predicted to generate revenue of only roughly half that amount). That same Goldman Sachs report highlighted the largest growth projections for the military and commercial/civil government sectors of $70 billion and $14 billion, respectively. Putting that in perspective, the commercial drone market alone only generated revenue of $40 million as recent as five years ago; now that segment is generating annual revenue exceeding a billion. In 2016, approximately 2.5 million commercial and consumer drones were manufactured and shipped, but by 2020 projections are that some 7 million units will be produced. At the same time, the United States, for now, remains the largest drone market; controlling approximately 35% of the global market.

Not surprisingly, the recent rapid growth in drone use has been spurred on by significant advancements in technology in a relatively short span of time as well as greater investment and developing support at the government level both federal and state. While drones have been around for a couple of decades and their concept is traceable as far back as World War I, it has only been in the last few years that they have become significant in terms of recognition of their expansive uses, a rapid expansion across industries, and global acceptance and awareness. The industry has moved quickly beyond hobbyists into ever-increasing usage for jobs running the gamut from gathering data and information in a multitude of situations and businesses, aerial photography, including for the entertainment and news gathering businesses, express shipping and delivery (still in its infancy but rapidly maturing), inspection, monitoring and mapping, agriculture, storm tracking and weather forecasting, multiple uses within the real estate industry, and law enforcement. At the same time, as Goldman Sachs concluded, military use continues to explode and will for years to come for everything from combat mission aid to general research and development. With drone technology constantly evolving and currently several generations into development, it is equally clear that drones will remain a force to be reckoned with for years to come.

2. Deterrents

Before addressing the deterrents to current growth of drone technology, a definition of a UAS may be helpful. UASs have been known by a number of names, including UAS, drones, unmanned aerial vehicles (UAVs) and remotely piloted vehicles, and those terms are often used interchangeably and sometimes are provided via state law. What is consistent with each term is the fact that we are dealing with “aircraft” that fly unmanned and by remote. UAS, however, is broader than the other terms. The term UAS does not refer only to the unmanned aircraft itself but also all of its included components, a distinction that may have some relevance under certain state laws and regulations.

As with every new technology there are concerns and roadblocks that generally require hurdles to be overcome to reach its full potential. Drones are no exception. McKinsey & Company released a report on commercial drones at the end of this past year that highlighted 5 factors impacting the UAS market. First, is the issue of public acceptance. Typical, and understandable, concerns are privacy and general nuisance and the public’s comfort levels in that regard may play a material role in the ability to expand drone usage. Preliminary indications are that legislative attempts to quell privacy concerns and technological advancements to reduce the nuisance factor of drones may diminish the public’s concerns but this will not simply happen overnight. That said, the significant investments now being made across industries in drone development and usage suggests that the business world believes the “public factor” will not be a material impediment in the long run.

Then, there are also technological capability considerations. Many of the sophisticated technologies crucial to growth in the drone market are still in development. These include battery performance, integrated air-traffic management, GPS/location performance, autonomous flight and technologies allowing drones to detect and avoid obstacles. All of these technological impediments are in one stage or another of being overcome but will take time to become fully operational. Next, there are infrastructure considerations. Current needs along these lines are relatively modest and do not raise significant blocks to the growing drone market. However, it is expected that as the markets continue to grow and expand they will require greater infrastructure needs, including landing facilities, service centers, distribution hubs, charging stations, and related to enable safe, low-altitude national airspace operations. Ongoing funding, private as well as public, for this still relatively nascent but vastly expanding industry must also be recognized as a potential hurdle, as with any new technology. Significant funding has poured into this technology during the past decade. It is still to be determined though whether that level of investment will remain steady as well as at what levels as between the private sector and government.

Finally, there is the matter of the law and regulatory environment. Not surprisingly, drones raise some very real and notable legal and regulatory concerns running from privacy/4th Amendment concerns to airspace and overall safety considerations.

3. Drone Law/Regulations

It should come as no surprise that with every new technology comes generally fairly material legal and regulatory concerns. In the U.S. these concerns arise at the federal, state and local levels. From the public’s standpoint, as noted above, many of these issues focus on privacy and nuisance matters. Additionally, as discussed at last year’s Drone World convention, the federal government has been equally concerned with what one spokesperson has labeled as the 3Cs: people who are careless, clueless and, most significantly, criminal. Safety is an overriding consideration with all of the 3Cs. Carelessness has, among other things, had drone operators landing drones on active airport runways or flying them within close proximity of commercial aircraft. Cluelessness has had drone operators, even licensed ones, flying into restricted airspace/zones or conducting aerial photography of what is, in fact, off limits. At the same time, in the criminal area there are likely a number of illicit scenarios that keep law enforcement and government authorities up at night. Drones have been used, for instance, to drop contraband into prison yards or to stake out locations for other criminal activities. Of course, there is also always the very significant concern of drones being used criminally for attacks and terrorism.

While the above concerns are all very real, the legal and regulatory responses to them have been surprisingly relatively recent and slow to develop. This has, at the same time, impacted the rate of operational drone use. A notable problem has been not only the actual drafting and passage of effective laws and regulations to the technology but also things such as the overlapping role of federal, state and local regulators. While the federal government controls the nation’s airspace, state and local governments have not hesitated to introduce thousands of bills that effectively challenge the federal government’s role conducted largely through the Federal Aviation Administration (FAA).

Federal laws and regulations still generally take precedence over state and local ones. In short, this means that everyone in the U.S. must at the least adhere to the federal government’s regulations effecting drones.  Those regulations currently speak primarily to (i) a special rule for model aircraft use, (ii) the requirements for commercial small UAS use, (iii) waivers and exemptions, (iv) drone registration, and (v) emergency operations. The most notable of those regulations (subject to waivers) are that (1) a small commercial drone must be less than 55 lbs., (2) it must remain within the visible line of sight of the operator at all times, (3) it must be kept below 500 feet (under 400 feet for recreational drones) and under 100 miles an hour, and (4) its operator must pass an aeronautical knowledge test. Additionally, for recreational drone use a drone should not be flown within a 5-mile radius of any airport.

As should be obvious to even the most casual observer in the commercial markets, the above regulations result in some fairly obvious operational hurdles, such as the flight height limitation and the beyond-the-visual-line-of-site (BVLOS) restriction. An example of the invasiveness of these restrictions to the growth of commercial drone use can be seen, for instance, in the real estate field. The real estate sector was one of the first to seek to exploit drone technology. It can allow developers, contractors, brokers and agents to gain valuable data and information via aerial drone photography and videography. However, in order to fully capitalize on this technology those within the real estate industry must (1) hire/retain certified drone pilots, (2) deal with airspace restrictions (a significant hurdle with large commercial properties and in most urban environments), (3) be aware of and comply with restrictions on drone flights above people and vehicles (drone flights above unsheltered non-participating people, as well as moving vehicles, are generally prohibited by the FAA), and (4) while the FAA does not currently require drone operators to get permission from property owners to fly over their property, some states and local municipalities have laws and regulations regarding privacy and nuisance issues that could impact a real estate concern from flying over a particular property without the owner’s express permission. These restrictions apply to industries across the strata and well beyond just those in the business of real estate.

Recognizing the above, the FAA has created a waiver process for matters such as loosening flight height and the BVLOS restrictions. Yet, a regular complaint of industry observers is that the process for obtaining a waiver can be extremely slow and administratively challenging. There is also no guarantee that once applied for, a waiver will be granted. Having the assistance of someone familiar with the intricacies of the waiver application process can be critical to one’s chances of success and the turnaround time for obtaining an approval. The FAA’s website provides information on the process and is a good starting point but best practices clearly show that effectively utilizing the process requires significant know how to obtain a waiver.

One additional recent development at the federal level for the commercial drone community was the establishment of an UAS Integration Pilot Program (IPP). This Program was established to allow state, local and tribal governments to interact with entities in the private sector to try and “accelerate” the integration of UAS. It is an attempt to balance national and local interests with those in industry and seek to reach a more functional understanding and guidelines for, among other things, BVLOS restrictions, night operations, cargo/package deliveries and technologies for the detection and avoidance of collisions and obstruction. The initial round of participants was announced just a few months ago in May. Results of this effort still wait to be seen.

Given the slow pace though at the federal legislative level in addressing concerns with respect to drone technology (there still is, for instance, at the federal level no separate privacy law(s) with respect to drone use), states have stepped in to try and plug gaps. As of mid-year 2018, 44 states have enacted laws or adopted resolutions addressing UASs (26 of these states have included legislation addressing privacy issues pertinent to drone use). These laws commonly have addressed such matters as defining what is a UAS, how they can be used by those in the general public, their use by law enforcement or other agencies and even as to their use for hunting game. It is beyond the scope of this article to summarize the legislation and resolutions of the current 44 states. Suffice to say, those seeking to use drones commercially, or otherwise, are well advised to consult with counsel as to the restrictions of the given state(s) they seek to operate in as well as the penalties that are likely if they fail to comply.

Interestingly, the state of New York does not currently have any enacted legislation at the state level specific to drone use. A number of bills have been drafted. Some have been considered and tabled while others have yet to move to a vote by the state legislature. At the same time, it should come as a surprise to no one (especially since 9/11) that a number of cities in New York have banned the use of drones within their geographic boundaries. Besides the obvious safety concerns, these restrictions are understandable from the standpoint that almost nowhere in the U.S. are drones supposed to fly freely over people and, thereby, eliminating many heavily populated urban environments. In the boroughs of Manhattan, there are just a handful of parks that have been designated as legal to take to the skies directly above them with drones, including Corona Park Flushing Meadows, Calvert Vaux Park, Marine Park and Forest Park. While this is of benefit to recreational drone enthusiasts it is of significantly limited value to commercial operators. At the same time, virtually all of Manhattan is off limits to drone use without a waiver (and the chances of getting one is no simple matter). Apart from these broad bans on drone flight in NYC (as well as in Syracuse and Orchard Park), there are not any other specific prohibitions on drone use in the state of New York. However, that does not mean there is unrestricted use around the rest of the state. Instead, a user must still comply with the federal laws and regulations. Additionally, drone use is also subject to general laws as to privacy, nuisance, negligence, and the like.

In short, there are a number of legal and regulatory matters critical to lawful drone use that strongly confirm the benefits of obtaining the advice of counsel before engaging in drone operations, particularly for commercial use. These matters include a general understanding of the scope and breadth of the laws and regulations applicable to the geographic area use is anticipated to occur, properly registering the drones to be utilized, successful use of the exemption, waiver and certification processes, privacy law implications for drone use, operating in regulated commercial airspace, avoiding FAA and other regulatory enforcement actions, cybersecurity and intellectual property protections and corporate transactions pertinent to M&A as well as joint venture arrangements relevant to those operating in the UAS arena.

Should you have any questions on any of the above or the laws and regulations as they apply thereto please feel free to contact Eric Sleeper.