Penalizing Innovation: The FAA’s Regulation of Drones

Alden Abbott —  15 March 2016

As the late Nobel Laureate James Buchanan and other economists have long pointed out, even in the case of market failure, regulation is only potentially justified if economic welfare under regulation is likely to be higher than under an unregulated market – not an easy test to meet, in light of rampant government failure.  Nevertheless, as the costs of government regulation mount (see here), federal agencies continue to plow ahead undeterred in the endless search for regulatory “fixes” to non-existent problems.   Government interference in the emerging market for recreational drones is a recent and particularly egregious case in point.

Heritage Foundation Policy Analyst Jason Snead and Visiting Legal Fellow John Michael Seibler recently documented the many problems with the Federal Aviation Administration’s (FAA) recent mandate that recreational drones be federally registered, accompanied by potential criminal penalties applicable to those who fail to comply.  As the authors explain in some detail (footnotes omitted), these FAA actions rest on dubious (to say the least) legal authority, represent a grossly inappropriate criminalization of legitimate conduct, fail to meet any sort of reasonableness test for regulation, and undermine innovation:

With passage of the 2012 FAA Modernization and Reform Act, Congress explicitly told the Federal Aviation Administration to leave recreational drones alone, but the FAA has charged ahead anyway. In just two months, with no input from Congress or the public, unelected and unaccountable bureaucrats have devised a way to apply the pre-existing aircraft registration penalties to create a federal felony offense that can result in up to three years in prison and up to $277,500 in fines for failing to register as the owner of a qualifying drone—essentially a toy.

As bad as this is for unwary drone owners, the real legacy of the FAA’s drone registry may be much broader. To justify its rushed regulatory action, the FAA, relying on trumped-up claims about the risk and harms associated with drone use, has asserted its regulatory muscle to protect society from these as yet unrealized dangers. Such thinking has important ramifications for the regulation of innovation and may be only a foretaste of future regulatory actions that deter or dissuade adoption of some new and innovative technologies. . . .

In creating its new drone-owners’ registry, the FAA claimed . . . [an] exemption [from Administrative Procedure Act [APA] notice-and-comment rulemaking], owing to the immediate dangers that the agency has alleged stem from the proliferation of drones in the national airspace. According to the FAA, “it is critical that the Department be able to link the expected number of new unmanned aircraft to their owners and educate these new owners prior to commencing operations.” But there are reasons to doubt the FAA’s claims that drones have suddenly become a problem and that it could therefore not countenance any delay.

The rapid growth of small, recreational drones is not new; in fact, Congress legislated on the subject of drone policy in 2012, fully three years before the FAA claimed a sudden exigency to justify rushing its registry into effect.

Claims of immediate danger are greatly exaggerated. There is no documented instance of a drone colliding with another aircraft, and it is unclear how dangerous such a collision would be.

The number of incidents—interference with emergency services, near-collisions, and other criminal misdeeds—is insignificant compared to the number of drones in circulation. For example, the FAA reported 764 unconfirmed drone sightings near airports or aircraft over an 11-month period at a time when there were possibly as many as a million registry-eligible drones in the hands of consumers.

A full analysis of the FAA’s claimed APA exemption is beyond the scope of this paper, but it is clear that there is reason to doubt the validity of the agency’s claims. In the process of rushing its registry, the FAA exposed hundreds of thousands of drone owners to steep civil and criminal penalties for conduct that is not inherently wrongful and that was not unlawful before the rule went into effect. . . .

[H]ere it seems clear that the FAA was not empowered either to criminalize the failure to register a recreational drone or to require its registration in the first place. While agencies get deference . . . to interpret vague and ambiguous statutes, the statute in this instance is not ambiguous . . . .

In addition to the fact that the FAA acted unlawfully here, the FAA drone registry merits reconsideration because it needlessly and hastily resorted to criminal penalties when civil fines would have sufficed to satisfy the government’s interests. . . .

Treating such relatively trivial conduct as failing to register a child’s toy the same way we treat murder, robbery, or theft ignores the profound difference between the two classes of offenses and puts parties engaged in entirely legitimate activities without any intent to break the law at risk of criminal punishment. This problem is only compounded by the fact that by the FAA’s own estimates, there may be as many as a million registry-eligible drone owners, and this population grows daily.

Yet the FAA cannot guarantee that all—or even most—of this group is aware of the registration requirement or that they face draconian criminal penalties for failing to comply. Since most people do not think to check with a federal agency before using their latest toy or gadget, this leaves a significant and growing segment of the population needlessly exposed to criminal liability. The explosive growth of federal criminal law and the dramatic expansion of the administrative state have gone hand-in-hand. Regulations like the FAA drone registration requirement generally make it all but impossible for individuals to know which of their toys—or any other things considered potentially “dangerous”—are permissible today but will make them felons tomorrow.

The significance of the FAA’s registry extends beyond its immediate impact on drone owners: It sets a precedent for criminalizing other innovations utilizing “emergency” rulemaking procedures premised on overblown claims of harm. While this is a particularly egregious abuse of the criminal law, government has a history of criminalizing or threatening to criminalize innovation under the “precautionary principle,” the belief that because a new idea or technology could pose some theoretical danger or risk in the future, public policies should control or limit the development of such innovations until their creators can prove that they won’t cause any harms.

Innovations affected by precautionary government action include commercial use of the Internet (until 1989); an at-home 99 genetic analysis kit; 3-D printing; Caller ID; Uber and Lyft, transportation services offered as an alternative to traditional taxi cabs; Airbnb and other short-term home rental companies offering alternative vacation rentals; driverless cars; and FWD (“Skype before Skype was Skype”), which eventually shut down in part because U.S. attorneys put the reigns on FWD to seek FCC approvals while foreign founders of Skype proceeded apace with no regard for U.S. regulatory approvals.

Criminalizing or otherwise restraining technologies like e-mail sounds laughable today, but e-mails were new and strange once, and like the driverless and Internet-connected cars just beginning to emerge in the market today, people felt that “the more we learn about [them]…the more we’re learning to fear them.” Telephones, too, were new and strange once, but “people quickly adjusted to the new device. ‘Ultimately, the telephone proved too useful to abandon for the sake of social discomfort.’” When the telephone morphed into the cellular phone, the public once again became alarmed over the possibility of cell phone radiation causing cancer. That fear eventually proved to be unfounded, but imagine the consequences and the cost, both social and economic, if the government had banned cell phones until that risk was definitively disproven.

This thinking is antithetical to the core premise of a bottom-up, market-based economy and threatens technological progress, entrepreneurship, and prosperity. Precautionary rulemaking also (ironically for a theory premised on protecting society from unknown harms) leaves society exposed to existing hazards that new technologies might otherwise remedy. Drones, for example, might be useful tools in fighting wildfires and providing environmental disaster relief, or detecting threats to community safety, or performing tasks that would otherwise place a human being in danger. Public policies that, based on unproven potential risks, prevent or slow the development of those capabilities force society to forego the opportunity to benefit from social adaptation and repeated trial and error.

Legislators and policymakers are standing by to capitalize on irrational fears or discomforts by introducing new legislation and regulations and claiming that such measures are necessary to protect the public from dangerous unknown technologies when, in fact, those fears are overblown. Often, these claims are hyped to distract from other motives, whether it be protecting an entrenched and politically connected interest, enhancing one’s notoriety, or establishing regulatory purview over an expansive new sector. The public would be better served by policies that allow innovative technologies to be brought to market and that let the market and society sort out the winners and losers.

The FAA’s ill-considered decision to create a recreational drone register illustrates one of the most troublesome aspects of much recent American regulation – the tendency to apply criminal sanctions to violations of myriad pettifogging rules, part of the broader problem of overcriminalization.  Many of the new regulatory crimes stigmatize routine actions carried out by individuals who had no idea they were engaging in illegal conduct (a problem recently elaborated upon by Heritage Foundation Senior Legal Fellow Paul Larkin).  The damage caused by such penalties extends far beyond the direct imposition of economic costs – it involves serious reputational harm and sharply constrains individual freedom.  As Heritage Senior Legal Fellow John Malcolm has pointed out:

There is a unique stigma that goes with being branded a criminal. Not only can you lose your liberty and certain civil rights, but you lose your reputation—an intangible yet invaluable commodity, precious to entities and individuals alike, that once damaged can be nearly impossible to repair. In addition to standard penalties that are imposed on those who are convicted of crimes, a series of burdensome collateral consequences that are often imposed by state or federal laws can follow an individual for life.

In order to preserve the moral authority of our legal system and engender respect for the rule of law, we should be especially careful before enacting laws or promulgating regulations that can cause an individual to be unfairly branded as a criminal. . . .

The mere existence of criminal regulations dramatically alters the relationship between the regulatory agency and the regulated power. All an agency has to do is suggest that a regulated person or entity might face criminal prosecution and penalties for failure to follow an agency directive, and the regulated person or entity will likely fall quickly into line without questioning the agency’s authority.

In short, advocates of reducing the burden of regulation may wish to emphasize the threat that it often poses to individual liberties, as well as its economic harm.

Alden Abbott

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I am a Senior Legal Fellow at the Heritage Foundation. I write on antitrust, domestic and international regulatory policy, and law and economics. I am an Adjunct Faculty Member at George Mason Law School.