Monday, March 30, 2015

Incentives and Competition in Innovation Markets: A Study of the FAA UAS Test Sites Competition

Guest Blogger

Robert Heverly

For the Innovation Law Beyond IP 2 conference, March 28-29 at Yale Law School

The (commercial) drones are coming. Amazon wants to deliver packages with them, as does Google, and utilities want to monitor their infrastructure with them. Known more properly as Unmanned Aircraft Systems (UAS), the Federal Aviation Administration has proposed new rules to regulate commercial drone use, and states have passed laws in an attempt to protect privacy and prevent alleged misuse of the drones (for example, preventing hunting by UAS).

In 2012, Congress passed the Federal Aviation Administration Modernization and Reform Act (FMRA), in which it directed the Federal Aviation Administration (FAA) to begin integrating Unmanned Aircraft Systems (UAS, or drones) into the national airspace. Section 332(c) required the FAA to designate six UAS national test ranges to allow testing to begin at those sites (without this authority, UAS cannot be used for commercial purposes without specific FAA authority). No funding was included in the test range designation; instead, UAS could fly at the ranges pursuant to a local, streamlined approval process, avoiding the otherwise relatively lengthy existing FAA procedure). Fifty applicants initially sought FAA authority to open test ranges, a number the FAA first reduced to 24 and finally to the six awardees (the FAA has since issued proposed rules for more general commercial UAS use, and even more recently approved use of certain UAS below 200 feet without significant restrictions).

The UAS industry is an innovative industry. We can contrast UAS with industries, such as manufacturing or even gambling facilities, that states may seek to entice to locate within their borders for purposes of encouraging economic development. Silicon Valley was not built by luring employers into the region. It was built – and succeeds – because of the benefits that innovation bring to the region (and it is so successful that there are now various “Silicon” and “Valley” themed regions throughout the world as others attempt to recreate Silicon Valley’s success).

In addition to having different potential benefits from other areas of economic development, innovation also has different requirements. Specifically, pulling from a variety of studies of innovation efforts, the following elements have been identified as important to whether regional innovation flourishes or does not: 
  • Region: the innovation is conducted within a discrete region;
  • Place: when that region is chosen based on the location-specific resources of the place itself, in other words, on the specific resources and opportunities available in that place;
  • Knowledge exchange: when there is a culture of knowledge exchange within that region;
  • Institutions: when all of the existing institutions is addressed when considering the structure of regional innovation; and,
  • Users: when users are included as a part of the innovation process. 

Taking all of these into account, we should be able to analyze whether states are aware of and prepared to take advantage of the nature of innovation when developing economic development policy.

The FAA test range competition presents a unique opportunity to undertake this analysis. Rather than following from a general political process that looked to encourage this particular economic development, applicants were responding to a particular, identified opportunity to gain legal authority to be one of only a few regions with the authority that was being granted. Only these six sites would be able to engage in approval of commercial UAS testing outside of the otherwise lengthy and bureaucracy of specific FAA approval. Within the applications, representations from state policymakers in support of the proposals would allow for review of how the states perceived these opportunities, and the states’ representations can be tested against how they address (or fail to address) region, place, knowledge exchange, institutions and users.

The data need to undertake exactly this review exists in the applications submitted to the FAA’s test range competition. I filed a Freedom of Information Act (FOIA ) request for these applications in November of 2014. The FAA neither responded to nor acknowledged the request through the end of the 2014 year. After continuing to try to get a response from the FAA after the turn of the year, I engaged the assistance of the National Records and Archives Administration’s Office of Government Information Services (OGIS), which will assist FOIA requesters with their requests. Following OGIS’s intervention, the FAA acknowledged the request and set a February 17, 2015 date for completion of the request. This date came and went without further communication from the FAA, and after making renewed inquiries, the FAA extended the date to March 2, 2017. This date was extended again to March 13, 2015, and then again to March 27, 2015 (this past Friday). That date again came and went without any communication from the FAA .The most recent communication, on March 16th, indicated that the FAA was denying the request in part and granting it in part. I do not know, at this time, what has been approved or denied.

This left me without the major source of (and most interesting) data for my study. As a poor proxy, I reviewed two state-level reports on the UAS industry, one from North Carolina (which did not receive a test range designation) and Alaska [pdf] (which did receive a test range designation). The North Carolina report, when reviewed against my criteria, showed little awareness that UAS development was different from the siting of other economic development projects. North Carolina attempted to spread the benefits of UAS development throughout the entire state, did not attempt to stimulate knowledge sharing, and failed to consider the full panoply of institutions that would be relevant to having fully engaged and innovative UAS development within its borders.

Alaska did a better job of considering many of these elements, but also failed terribly at others. For example, a core part of the Alaska range is that it is spread across three states: Alaska, Hawaii, and Oregon. This significantly de-emphasizes knowledge sharing, gaining the advantage of place, and even retaining the regional approach to innovation. That said, Alaska was much more active in encouraging interaction between universities, research and development organizations, and industry, and this is a key element of knowledge sharing.

Overall, both Alaska and North Carolina focus primarily on the employment and tax benefits of UAS development, failing to grasp and take advantage of the innovative potential presented by the test range competition and the innovative nature of the UAS industry. Whether this is true of the majority of test range competition applicants is the unknown element that will only be addressed once the FAA releases the applications themselves.

Robert Heverly is Associate Professor of Law at Albany Law School. He can be reached at rheve at


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