Move: Supply Chain Drones on the Horizon

Move: Supply Chain Drones on the Horizon

Drones will soon be employed to escort tractor-trailers, deter theft, secure sites and even detect unauthorized people. Will you be hiring?

"You had to live—did live, from habit that became instinct—in the assumption that every sound you made was overheard and, except in darkness, every movement scrutinized."
—George Orwell, 1984

2013: Drones in Civilian Life

Drones, also known as unmanned aerial vehicles (UAVs) or unmanned aerial systems (UASs), have been in the news constantly with respect to their value as military assets. Controversy over their use in Afghanistan, Pakistan and elsewhere has provoked Congressional debate, Rand Paul's old-school Senatorial filibuster and street corner protests around the nation. And now private sector drones are starting to be used for myriad applications.

Private drone use promises to impact businesses' bottom lines as labor costs virtually disappear from certain monitoring and shipping functions now performed by manned aircraft, over-the-road vehicles, or even on foot. Drones can also reduce risks and insurance costs by replacing humans on dangerous tasks such as inspecting cell phone towers, landing in antiquated rural airports, transporting or escorting high value freight, monitoring wildfires or other natural hazards, and conducting search and rescue operations for missing assets or personnel.

Indeed, private groups and individuals are lining up to apply this newly available technology to their business, interest or cause. For example:

  • PETA is buying drones to spy on hunters and farmers to ferret out illegal animal abuse.
  • Realtors are using drones to photograph luxury homes.
  • Farmers are using drones to monitor crop conditions.

Private drone ownership is predicted to expand to 10,000 unmanned aircraft vehicles within the next five years and to 30,000 by 2020.  In addition, hobbyists are creating and flying small, lightweight UAVs of their own, sometimes likened to "flying smartphones." The hobbyist drone community currently consists of approximately 33,000 active members who create and control personal hobby drones. Private companies are beginning to manufacture drones for civilian use by both corporations and individuals.

The cost of owning a drone can range from $200 to over $20,000 with a basic camera-carrying drone costing around $1,000. A typical private smartphone-controlled drone might weigh in at four or five pounds, have a wingspan of 4.5 feet, length of 3 feet, maximum altitude of 14,000 feet, and can stay aloft for about two hours. Such a drone can then be equipped with GPS, digital still and video cameras, listening devices, infrared and ultraviolet lenses, onboard computer systems—anything within the drone's max payload, one's imagination and budget.

Supply Chain Applications

There are numerous applications for drones along the supply chain.  For example, drones can deliver freight.  Drones carrying freight payloads will significantly reduce air transportation charges, speed up transit times, and enable cost-effective delivery to remote, sparsely populated locations. 

Moreover, drones are not adversely affected by certain trucking-specific industry issues such as Hours of Service regulations, or by over-the-road variables affecting timely delivery such as automobile accidents, inclement weather and highway construction.  Further, drones can escort tractor-trailers carrying high-value pharmaceuticals or electronics which may deter theft or, alternatively, provide forensic evidence to law enforcement in the event of theft.

Drones also have useful security applications.  For instance, drones can conduct perimeter surveillance, protect sensitive facilities, monitor chemical hazards or pipelines, detect explosives, and use facial recognition technology to determine whether unauthorized people have entered restricted sites.  In addition, investors can use drones to photograph and 3-D map possible investments in warehouses, mines, timber forests, or farmland. 

Given the many possible applications for this technology, it would seem that owning a drone involves merely a simple asset purchase.  Unfortunately, understanding and complying with complex, inchoate, overlapping federal, state and local regulations governing drone use complicates the equation.

Regulation of Civilian Drones

A group of drone manufacturers formed the Association for Unmanned Vehicle Systems International (AUVSI) to lobby the Unmanned Systems Caucus, an over-50 member Congressional caucus, to pass laws enabling drones to become integrated into the national airspace. Last year, Congress passed the FAA Modernization and Reform Act of 2012 which was signed into law on February 14, 2012 (the "Act"). The Act sets forth standards for operation and certification of private drones, operator requirements, and requires the FAA and Secretary of Transportation to integrate both public and private drones into the national airspace by September 30, 2015.

Startlingly, hobby drones and model aircraft are specifically carved out from regulation by the Act. The Act exempts these personal drones if they weigh less than 55 pounds, do not interfere with manned aircraft, and are flown more than five miles away from an airport.  This might wind up being the exception that swallows the rule.

Future regulation of unmanned aerial vehicles will continue to develop at both the state and federal level in the years to come.  The FAA is still working on standards for operation and certification, requiring drones to be equipped with "sense and avoid" capabilities, determining operator requirements, and establishing methods to enhance technology and maintain safety.  In addition, the Secretary of Transportation is required to publish a final rule on small UAVs, as well as a "notice of proposed rulemaking to implement the recommendations" of the integration plan. The FAA is also responsible for developing and implementing a pilot project, and integrating drones into the national airspace at six test ranges.

Finally, the Secretary of Transportation is obliged to work with public agencies to expedite certificates of authorization, allow expanded access to the national airspace, and "provide guidance on the public entity's responsibility when operating an unmanned aircraft." 

The FAA established the Unmanned Aircraft Systems Integration Office to provide a one-stop portal for civil and public use drones in U.S. airspace.  Later this year, the FAA expects to release proposed rules establishing policies, procedures and standards relating to drones.  The prospect of privately controlled drones entering air space currently occupied by manned vehicles poses significant safety concerns. While the FAA works on integrating drones into U.S. airspace, lawmakers and citizens are worried about privacy issues.

Privacy Implications

Critics of the Act fear that it will allow the government and private parties to trample the privacy rights of individuals.  Most of these concerns center around increased warrantless arrests and advances in spying capabilities.  The two main potential claims that could arise due to drone usage are either: (1) violation of the Fourth Amendment or (2) invasion of the common law right of privacy. 

Under the Fourth Amendment to the U.S. Constitution, citizens have the right "to be secure in their persons, houses, papers and effects, against unreasonable searches and seizures."  The Fourth Amendment also requires probable cause before a search warrant may be issued. 

As law enforcement agencies continue to purchase drones, citizens fear overuse by the government and possible mass surveillance. In a line of cases decided by the U.S. Supreme Court, the Fourth Amendment has been construed to allow law enforcement to use aircraft and aerial photography to gather evidence without a warrant so long as sense-enhancing equipment is not used to peer into the otherwise private confines of homes and structures. The rationale is that if the police could drive by and see something in plain view in a citizen's front yard or even through a window, then there is no expectation of privacy in such areas; and, therefore, since aircraft have become ubiquitous, views from the sky are analogous to views from the street. Gauging constitutional privacy rights by the ubiquity of the surveillance method does not bode well for privacy advocates in the face of the mushrooming interest in and availability of drones.

Indeed, surveillance drones are not much different from satellites, store security and traffic cameras, and smartphone GPS tracking devices. The only Supreme Court case mentioning privacy issues related to satellite surveillance is Dow and the Court's dicta merely says "that surveillance of private property by using highly sophisticated surveillance equipment not generally available to the public, such as satellite technology, might be constitutionally proscribed absent a warrant."  This language leaves unanswered the question of whether such surveillance would be legal if generally available to the public.  The legal world as it relates to drones is a wide-open frontier, and exactly how drones will affect Fourth Amendment and privacy rights is yet to be seen.

Apart from privacy concerns relating to potential government spying, the prospect of high-tech nosy neighbors, employers, and private investigators has raised concern. The scope of privacy rights has historically been both ill-defined and constantly evolving. Different states have different privacy protections established by statute or common law. In addition to criminal wire-tapping, eavesdropping and surveillance statutes, private common law claims of invasion of privacy can encompass four loosely related but distinct torts:

1) intrusion upon another's seclusion or solitude, or into his private affairs;
2) public disclosure of embarrassing private facts about another;
3) publicity which places another in a false light in the public eye; and
4) appropriation of another's name and likeness.

Of course, there is a fair bit of irony in the fact that someone damaged by another's invasion of privacy or intrusion upon seclusion is forced to file a very public lawsuit in court to vindicate their privacy rights.

Future Privacy Regulations

Apart from the FAA's mandated integration and safety regulations, privacy advocates are gaining widespread support. Both the ACLU and the Electronic Privacy Information Center (EPIC) are asking the FAA to add privacy safeguards into their upcoming regulations. EPIC, along with 30 other organizations and more than 70 individuals, sent a petition to the FAA urging the agency to consider privacy and civil liberty concerns when drafting additional regulations for drone use. To date, it does not appear that the FAA is willing to address privacy issues.

Congressional attempts to tackle privacy concerns have not yet been voted on. The "Preserving American Privacy Act," first introduced to Congress in July of 2012 (H.R. 6199), was again reintroduced to Congress on February 13, 2012 (H.R. 637). This bill would restrict the use of drones by both law enforcement and private individuals to spy on individuals in private areas, as well as ban the use of weaponized drones in U.S. airspace.  The bill appears likely to again die in committee. 

Since Congress is not yet protecting civil liberties, cities and states are attempting to pass laws restricting drone usage.  The first to act was Charlottesville, Va.  The Charlottesville bill places limits on information gained through drone assisted police investigation.  The bill asks the Virginia legislature to bar the presentation of information, gained through the deployment of drones, from state or federal courts, and affirms that it will do the same for city-owned drones. Idaho recently passed a law imposing strict guidelines for when police and public agencies can use drones, and also banned the private use of drones to spy on people or their property without their consent.  Idaho's law provides drone victims with the right to press charges and recover $1,000 in damages.

Indeed, bills to regulate both public and private drone use are still being actively considered in 31 states. Most such bills include provisions requiring law enforcement to obtain a warrant before using drones as investigative tools. For example, Florida's senate unanimously passed the "Freedom from Unwarranted Surveillance Act" requiring a judge to sign off on the use of surveillance drones except in extreme circumstances.

In the absence of preemptive federal protection of privacy rights, drone owners and operators will be forced to contend with a hodgepodge of local regulations and citizens' privacy rights that may vary depending on their location.  Given that drone owners must operate under a complex, evolving legal, jurisdictional and regulatory framework, adopting and implementing risk management practices is essential to mitigate risk and reduce possible exposure to liability.

Risk Management Practices

Drone risk management subject matter expert Grant E. Goldsmith, who provides specialized drone insurance, believes that drone operators should adopt at least six general risk management practices:

• Determine whether the FAA's regulations apply to your drone and, if so, maintain compliance accordingly.  

• Analyze the drone's intended use, research available options, and purchase the right drone that will fly and operate under those conditions for such intended usage.

• Provide specialized training to the drone operator or hire a qualified individual with training on the drone's operating system. 

• Address ground spatial requirements such as runaway and base station location, and other operational considerations including whether one will need to chase the drone and transport it to various base stations. 

• From a post-operation standpoint, plan on how to maintain, repair, and store the drone. 

• Purchase insurance to protect against general liability and exposure related to invasion of privacy and public safety.

Conclusion

Today, any entity or person can purchase an inexpensive drone suitable for a variety of applications that can be controlled from a smartphone.  This form of disruptive technology represents a scientific innovation that will transform certain businesses and operations.  
Supply chain managers should research possible drone applications now, before the technology is fully integrated into the American business landscape within the next decade.

Enan Stillman is an attorney with the law firm of Graham & Penman LLP (www.grahamandpenman.com). He practices in the areas of transportation and logistics, insurance, mergers and acquisitions, debt and equity financing, fund formation and investment management, land use and general corporate law and governance.  Jason Graham is a partner at the firm and practices in the areas of complex commercial litigation, intellectual property protection and litigation, mediation and recently won a large jury trial verdict in the area of privacy rights. They may be contacted at (404) 842-9380.

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