The Sophisticated FAA Investigation That Led to the Largest Drone Fine Ever
BY Alan Perlman22 October 2015
By: JASON KOEBLER
Tuesday, the Federal Aviation Administration hit a Chicago-based aerial photography company with an unprecedented $1.9 million fine for flying drones unsafely over the course of some 65 unauthorized flights in crowded airspace. For many drone pilots, the news was unexpected and raised two important questions: How did the FAA conduct its investigation, and are there more fines coming?
So far, both the FAA and the company being fined, SkyPan International, are keeping silent on specifics of the case, but all signs point to this being a protracted slog of a legal proceeding that could have far-reaching implications for both drone businesses and hobbyists around the country.
My reporting suggests that the FAA’s investigatory arm is sophisticated and methodical, and FAA Deputy Administrator Michael Whitaker told Congress Wednesday that the agency is “clearing through its backlog” of investigations. More fines are coming.
The SkyPan fine is by far the largest ever levied against a commercial operator, smashing the previous record of $18,700. Drone industry analysts say businesses that operate on the margins of legality should see this as a shot across the bow from the agency.
“This is as strong a sign as you’re going to get to industry that the FAA is going to try to enforce the law,” Lisa Ellman, a drone law expert with Hogal Lovells law firm told me.
At issue here is whether the FAA can actually fine SkyPan for its flights. The FAA’s list of unauthorized flights took place between March 21, 2012 and December 15, 2014. During much of that period, the FAA’s drone regulations were murky at best, with many lawyers (including SkyPan’s, in a separate legal proceeding) arguing that there were none at all.
“I definitely think at some point, there’s going to be a precedent set regarding this incident or maybe a different incident,” Ellman said. “This is an industry that’s still opening now, and there’s so many public policy issues here—there’s a lot of grey area about how it’ll all be decided.”
“They’re trying to make an example out of the irresponsible fliers”
There’s little point in spilling more digital ink here about the FAA’s lack of clear drone guidelines. More interesting is the process the FAA used to fine SkyPan and what it may mean for the rest of the countless drone business owners who are operating on the margins of legality.
SkyPan International is a Chicago-based aerial photography company that, for the last 27 years, has used both drones and manned helicopters to take photos for high-end real estate companies, mostly in Chicago and New York City. Often, it turns those images into 360-degree interactive websites. Its clients include the Ritz Carlton, Donald Trump’s properties, Vornado, and the Four Seasons, according to a petition it sent the FAA last year asking for a commercial drone permit.
Both SkyPan and the FAA declined to speak with Motherboard about the specifics of the investigation. However, the FAA and SkyPan spent 16 months between November 2013 and March 2015 involved in a legal battle over SkyPan’s business records. The court documents provide a window into the FAA’s process, and the following section is based on those documents.
In January 2012, an anonymous person or company filed complaint with the FAA claiming that SkyPan “operated a UAS aircraft in the New York Class B controlled airspace to conduct commercial aerial photography.” (Class B airspace refers to airspace within a few miles of a major airport—most of New York City falls under this designation, for example.) That same month, the FAA formally opened an investigation.
Over the course of 2012, it received at least two more anonymous complaints regarding SkyPan’s flights. In the drone industry, such anonymous complaints are common. Until recently, nearly all drone businesses operated without authorization from the FAA—competitors often call in complaints about each other to gain a competitive advantage.
The FAA’s investigation turned up several photographs taken by SkyPan. (It’s unclear where these photos were taken from, but SkyPan’s own website is a good bet.) It was impossible to tell from the photos whether or not a drone or manned helicopter was used for the photos. In other instances, it was impossible to prove when the flights took place or how they were taken, according to a sworn statement by John Wilkens, an FAA safety inspector.
Undeterred, the FAA began digging deeper. It called Macklowe Properties, one of SkyPan’s Manhattan clients, to ask it for official contracts with SkyPan. According to those documents, Macklowe paid SkyPan $53,355 for at least one photo session using a drone.
“The documentation provided by Macklowe Properties clearly indicated that SkyPan utilized UAS in a commercial operation,” Wilkens said.
During this entire investigation, SkyPan and hundreds of other drone companies continued to fly drones for commercial purposes. Also during this time, the FAA was involved in a court battle with Raphael Pirker, a Swiss national who was fined $10,000 for filming a video advertisement with a drone at the University of Virginia. At issue in that case was whether or not the FAA had the proper regulations in place to fine anyone for flying a drone, commercial or not. Many lawyers—including SkyPan’s—argue that it did not, because the agency is using a law written for “reckless operation” of manned aircraft as the backbone of its authority. The FAA eventually lost the Pirker case, but won it on an appeal to the National Transportation Safety Board.
An FAA legal statement demanding all of SkyPan’s drone contracts.
If it goes to court, that same issue will arise in the SkyPan case, because a federal district court has not yet weighed in on the legality of the FAA’s interpretation of aviation law.
The FAA used the documents it got from Macklowe as evidence as probable cause to request more documents directly from SkyPan itself. In August 2013, the FAA hit SkyPan with a subpoena asking for “any and all agreements or contracts … concerning the use of any [drone] to conduct surveillance and/or photography in the New York City and Chicago metropolitan area Class B airspace.” The requested documents included all of its Macklowe flights as well as any other commercial jobs.
The FAA now appears to be trying to levy fines for an investigation it previously considered ‘closed’
This subpoena started a long legal back-and-forth between SkyPan and the FAA that played out in Illinois District Court. SkyPan claimed that the FAA was asking for documents it already obtained from Macklowe and thus shouldn’t have to comply with the subpoena. SkyPan also said it had already sufficiently coordinated with the FAA. During 2012 and 2013, FAA officials and SkyPan had several face-to-face meetings and calls in which the company says it discussed its drone’s safety features and discussed the FAA’s confusing drone regulatory structure.
“My client is regularly and voluntarily in touch with the FAA’s UAS division in Washington, DC, which should by itself obviate the need for [the FAA] to separately investigate,” SkyPan’s lawyer wrote in response to the subpoena.
That fact is at least partially substantiated: Wilkens wrote in a September 2012 letter that an FAA investigation into at least one of SkyPan’s flights determined that its operations “did not establish a violation of [the law], and you may consider the matter closed.”
The FAA wanted all of SkyPan’s drone contracts, but the company pushed hard to limit the investigation to the Macklowe flights.
“SkyPan’s principal objection to the FAA’s subpoena is that it goes one bridge too far in seeking documents unrelated to the specific complaint investigations,” SkyPan’s lawyer wrote.
The FAA disagreed, and demanded in a follow-up filing that SkyPan provide it with all the documents it asked for, noting that the company’s website showed it had conducted flights for clients separate from Macklowe. The judge in the case agreed, and SkyPan was compelled to turn over the rest of its contracts last year.
Presumably, these documents were used to levy the massive $1.9 million fine handed down Tuesday. The FAA’s enforcement letter is scant on details about how the flights were determined, but specific about many of the dates and locations of them.
Of note, the FAA now appears to be trying to levy fines for flights that Wilkens previously threw out in his testimony and in his letter to SkyPan informing the company that the matter had been “closed.”
As we noted Tuesday, SkyPan recently won an official exemption from the FAA that now allows it to fly drones entirely legally. Whether the company has the money to pay $1.9 million and move on, it’s impossible to say.
We won’t know SkyPan’s next move until it speaks on the record about the investigation, pays the fine, or challenges it. This is the only statement Mark Segal, the company’s CEO, would give Motherboard:
“SkyPan has been conducting aerial photography above private property in urban areas for 27 years in full compliance with published FAA regulations,” he said. “SkyPan is fully insured and proud of its impeccable record of protecting the public’s safety, security and privacy. Images produced by SkyPan have been used to sell or lease commercial and residential real estate throughout North America.”
A screenshot from one of SkyPan’s 360 degree virtual tours
Also of note, the FAA’s website says the agency has the authority to issue fines of up to $50,000 to small businesses. For amounts larger than that, the Department of Justice must get involved, which would put the matter in front of a federal district court as opposed to the National Transportation Safety Board.
If the company does fight the case, we’re probably looking at a several year proceeding.
The more pressing question then, is how many more of these fines are coming? For the last several years, whenever a high-profile drone incident hits the news, the FAA’s standard response has been to say that it’s “investigating,” but it seems as though nothing ever comes from these investigations. A look into the SkyPan subpoena saga shows that the FAA does have a very advanced investigatory arm, but that it moves quite slowly.
It’s also no secret that the FAA’s investigatory arm, while sophisticated, is understaffed and underfunded, as the agency has said in numerous Congressional hearings. There are many hundreds of drone companies in the United States, and the FAA will tell you that any of them operating without its express permission are doing so illegally. That said, it admits it will never go after everyone.
Wednesday, FAA Deputy Administrator Michael Whitaker was asked at a House Transportation and Infrastructure Aviation subcommittee hearing how many drone businesses are operating illegally.
“The numbers are too big for us to track, and we don’t have those resources,” he responded. “We’ve had several hundred investigations, and we’ve issued 20 civil penalties.”
Whitaker said the agency doesn’t want to give out fines if it can avoid doing so: “If we don’t have to use enforcement, we don’t use enforcement.”
That said, he added that the agency is “clearing through a lot of the backlog, but [violations] are coming through at a good clip.”
Ellman told me she expects there to be more fines issued, and that the SkyPan case should serve as a warning to those who are still flying without FAA permission.
“They don’t have the resources to police all the illegal activity out there, so they’re trying to make an example out of the irresponsible fliers,” she said. “That said, it wouldn’t surprise me if there are more investigations in the works. They’re under a lot of pressure to clamp down on some irresponsible activity.”