New FAA (Federal Aviation Administration) guidelines for the commercial use of small Unmanned Aircraft Systems, a/k/a “sUAS” or “drones” go into effect later this August. This is exciting news for any business that can benefit from inexpensively-deployed aerial photography and other remote sensing technology, like those in the agriculture, construction, and real estate industries.  For example, not only can realtors now inexpensively obtain aerial photographs and video to better market a property, but vineyard managers can now keep a closer eye on canopy health, or even trace irrigation leaks, using infra-red systems. HVAC and solar technicians will be able to inspect roof-top solar or heat/cooling installations much more efficiently.

Commercial use of drones is emerging from several years of uncertainty while the FAA worked on its new guidelines. Previously, it was difficult to fit oneself within the narrow exemptions to the FAA’s ban on commercial use. Now, however, the industry is forecasting that drone use will become an $82 billion business and bring more than 100,000 new jobs to the labor market over the next 10 years. The FAA forecasts that there will be 11 million drones sold between 2016 and the end of 2020 just for commercial purposes (with another 15 million sold to “hobbyists”).

We expect to see our business clients take advantage of this developing technology.  Any business that thinks it might benefit from being able to quickly and inexpensively deploy remote sensing technology will be quick to look into the opportunities presented by drones.  Here are just a few of the issues we expect to be counseling our clients about as they explore these opportunities:

Outsource or insource? If you anticipate making drone operations a daily part of your business, it probably makes sense to insource. This is especially true if you are concerned about keeping control over the data collected by the drone.

Over the last year, drones have crashed onto the White House lawn, nearly hit a Medevac helicopter, and several times caused firefighters in California to halt air attack operations for the safety of flight personnel.  Understandably, the FAA is requiring purchasers of all new drones weighing between .55 and 50 pounds to register online before the first flight (all current drone owners have until next February to register). There are substantial civil and criminal penalties available to the FAA for noncompliance. Whether they will be able to enforce the registration requirement is questionable, but, if something goes wrong with a drone operation, you can bet they will follow up.

Commercial drone operators must also pass a written, drone-specific aeronautical knowledge test, and most will have to take the test in person. Drones will not be allowed to fly over people or beyond the operator’s line of sight during commercial operations (sorry, no remote drone delivery just yet).

Expanding core business operations to conduct drone operations won’t be everyone’s cup of tea. It may make sense, however, for businesses which can benefit from deeply integrating drones into their business, especially if collecting proprietary data. For example, a vineyard management company with  years of remote sensing data about its vineyard will want to avoid discovering, only when it’s too late, that it can’t export the data to a new provider, or that its vendor has been data-mining to sell insights to competitors.

Regulatory Compliance.  Companies insourcing drone operations must, of course, ensure they are complying with federal and state laws/regulations governing commercial drone operations (there are currently 14 drone-related bills pending in the California legislature!). Companies outsourcing drone operations should consider whether their service contracts include representations and warranties that the drone operator is properly licensed and will comply with all applicable laws. Companies should also consider whether the contract properly allocates risk for performance problems or third party incidents that can be attributed to noncompliance.

Insurance.  Companies adding drone operations to their business activities should make sure they are insured for this activity. Companies outsourcing activities should ensure that the vendor they hire maintains appropriate insurance, and, if possible, that they are added as additional insureds.

Contractual Allocation of Risk for Harm to Property and Third Parties.  Whenever drone operations are conducted for the benefit of others, the contracting parties should make sure that they have properly allocated the risk for injuries to property and people, to the appropriate party. For example,  a purchaser of drone services would be well-served by requiring the drone operator to indemnify the purchaser for claims arising from drone operations.

Data ownership.  The concepts of “authorship” and “work for hire” are beyond the scope of this advisor, but, both federal intellectual property law and California labor laws can be implicated by seemingly innocuous terms in a service agreement with a drone operator.

The impending growth of remote-sensing drones as a tool for advancing the mission of your business presents an exciting opportunity. With the right attention to the many issues this new technology raises, you can be poised for success! If you have any questions about the content of this month’s advisor, please feel free to contact me or the BFAS attorney with whom you regularly work.

Marcus J. Kocmur, Partner

(Direct) 805.966.7715


DISCLAIMER:  This Advisor is one of a series of business, real estate, employment and tax advisories prepared by the attorneys at Buynak, Fauver, Archbald & Spray, LLP. This Advisor is not exhaustive, nor is it legal advice. You should discuss your particular situation with us or with your own attorney. Our legal representation is only undertaken through a written engagement letter and not by the distribution of this Advisor.