Is the FAA limiting drone innovation?

August 28, 2014, 11:00 AM UTC
A pilot flies a Phantom drone by DJI company at the 4th Intergalactic Meeting of Phantom's Pilots in an open secure area in the Bois de Boulogne, western Paris
A pilot flies a Phantom drone by DJI company at the 4th Intergalactic Meeting of Phantom's Pilots (MIPP) in an open secure area in the Bois de Boulogne, western Paris, March 16, 2014. Drone operators in France are required to complete a training course to fly an unmanned aerial vehicle and also receive written approval for flights in urban areas. Picture taken March 16, 2014. REUTERS/Charles Platiau (FRANCE - Tags: SCIENCE TECHNOLOGY) - RTR3HM2J
Charles Platiau—Reuters

The aircraft regulatory agency’s delays on making rules for commercial drones is forcing businesses to wait. And wait.

NOTE: See update at bottom of this story.

In the winter of 2013, Scott Pham had finished teaching his fall semester on drone journalism—a new journalistic method of reporting and photographing stories by using unmanned aircraft—at the University of Missouri. While gearing up for the spring, the federal government sent a letter that disrupted his plans.

“The letter was quite vague,” Pham recalled. “It said something like—your actions ‘may be’ in violation of our regulations.”

The letter came from the Federal Aviation Administration (FAA)—the U.S. regulatory agency that ensures safe passage of manned and unmanned aircrafts.

In drones, Pham found the perfect reporting tool. One of his students flew a drone along the Missouri River and collected visual evidence on how oil and gas companies used the water for drilling operations without paying any money to the government.

“We chose environment and agricultural stories because we thought, for safety and regulatory reasons, we wanted to avoid stories that would require us to fly over cities and populated areas,” Pham said.

That didn’t seem to make a difference to the FAA. Pham called up the local FAA regulator in Missouri and explained to him the value that drones could add to journalism. The regulator was unmoved. “He told me in no uncertain terms ‘we want you to stop flying,” Pham said. “Do not fly.”

The university initially vowed to support him, says Pham. “There was a moment where they were very combative. They were like—‘we are going to bring this to the Supreme Court.’”

Pham was in the process of applying for the future grants to run the program further. A few weeks later, the university turned a cold shoulder on him. They asked him to follow the FAA guidelines, which meant not flying outside for content gathering. Pham felt that would kill the basic essence of drone journalism and decided to leave the program. Later, also following a directive from the FAA, the University of Nebraska-Lincoln also ended its drone-reporting classes.

In a statement to Fortune, an FAA spokesperson explained that since universities are public entities, they are required to apply for a Certificate of Authorization (COA) before launching a drone journalism program. Pham says he didn’t pursue a COA because the process took months, and that the students weren’t flying drones for commercial reasons, but for research.

A year later, Bill Allen, an assistant professor at Missouri’s School of Journalism and co-founder of the drone reporting program, took charge. Allen revised it and opened it up to students of others fields of study, including geology, geography and conservation biology. “There really is no official Missouri drone journalism program right now,” Allen said. “We are staying inside, continuing to find ways to teach our students without flying drones outside.”

In the past four years, the FAA has fired off letters to individuals and organizations operating what it calls “suspected commercial Unmanned Aerial System (UAS) operations.” First the FAA issues a verbal warning; then it sends a letter. Users who continue to fly receive “cease and desist” letter.

The FAA is choosing to go after anyone using drones to make a profit, though that remains somewhat difficult to prove. Hobbyists are permitted to fly drones for pleasure. Then there are certain air-traffic rules: as an on-ground pilot, you cannot fly above 500 feet, or lose sight of your flight.

These guidelines are hard to follow. In 2012, Congress asked the FAA to bring the drones under the legal canopy of national airspace by 2015. In the meantime, pilots who want to fly commercial drones are required to seek approval from the FAA.

Since then, regulators have been deluged with petitions. Hollywood filmmakers, farmers, real estate agencies, power line and oil rig inspection companies have sought permission to operate drones. After Amazon announced its plan in late 2013 to use drones for package delivery on CBS’s 60 Minutes, the company sought clearance from the FAA to test its bots outdoors. The request is still pending but it gave drone lobbyists enough leverage to criticize the FAA for limiting innovation with “slow law-making.”

“Manufacturers are starting to get anxious about migrating a lot of this technology into the commercial sector,” says Ben Gielow, a lobbyist at Association for Unmanned Vehicle Systems International (AUVSI)—a Washington D.C. based drone advocacy group. “The commercial market is expected to outstrip the military demand within the next decade.”

Lockheed Martin, one of Gielow’s clients, has already bought two drone startups and it is eyeing other companies that monitor weather and natural disasters, aerial imaging and satellite communications.

According to AUVSI, the FAA clearance to commercial drones could contribute $82 billion to the economy and the creation of 100,000 jobs in the U.S. by 2025. And any further delay, Gielow told me, would result in the loss of $27 million per day.

So what’s the hold up? A spokesperson for the regulator told Fortune that the agency has made “significant progress toward that goal, even as it dealt with disruptions due to sequestration and a three-week government shutdown.” Then there are technical issues to work through: the spokesperson said, the agency is developing a mechanism through which manned and unmanned aircrafts can communicate to avoid collisions.

“This is an exciting new technology,” the FAA said in statement. “People want to see what it can do—and what they can do with it. Detect and Avoid and Command and Control are two key integration-related research areas that must be addressed before routine beyond-line-of sight operations will be authorized to fly.”

But the Department of Transportation doesn’t buy the FAA timetable. In an audit report published on June 26th, the Department of Transportation doubts that the FAA will meet the September 2015 deadline. The auditor suggests that the FAA wasn’t “effectively collecting and analyzing” the drone safety data in order to pinpoint risks. That flaw existed because the agency has neither developed a process that ensures all drone safety incidents are “reported and tracked” nor does it share that data with the U.S. Department of Defense, which, according to the auditor, is the largest user of drones.

With the regulatory uncertainty, many operators are brushing aside the commercial prohibition and flying for money. Every other day, newspapers report on commercial uses from weddings being filmed with drones to gas pipeline inspection to smuggling of marijuana in a South California prison.

Until recently, the agency viewed the option of slapping a hefty fine on violators as a potent weapon but that too has been neutralized in the court. As a result, the FAA is caught between public criticism and legal ordeals.

Brendan Schulman, who tweets as @dronelaws, is America’s best-known drone lawyer. The 40-year-old native of New Jersey has been flying model aircrafts since he was in his teens. Schulman entered the conference room of his Midtown Manhattan office with a plastic drone tucked under his arm.

Schulman defended the most important case in the drone history. In 2010, the FAA slapped a $10,000 fine on Raphael Pirker, an Austrian drone photographer, who flew a remote-controlled aircraft to record a promotional film for the University of Virginia. As Pirker put up the raw footage on You Tube, the FAA sent a letter, accusing him of reckless flying, premised on the notion that his aircraft was used commercially and therefore subject to the airspace regulations.

When Schulman read about it in newspapers he contacted Pirker, whom he knew through hobby circles, and offered his legal help. “He was flying a five-pound aircraft with a camera in the front,” Schulman said. “He didn’t hurt anybody or damage any property. So we took on the case and defended it primarily on the basis that there is no actual regulation concerning model aircrafts people now call drones.”

The judge agreed with Schulman and in March 2014 quashed the fine. Since Schulman won the precedent setting case, the FAA appealed to the National Transportation Safety Board. But the federal court’s decision managed to ease the atmosphere, opening the doors for real estate firms, architects, wedding planners, ad agencies and others to use this technology for business.

Schulman is critical of the FAA’s argument—that its prime consideration is safety. For him, the guidelines for hobby drones can be applied to commercial machines too. The reason: “When lightweight systems (drones) are flown close to the ground, little regulation is needed to ensure safety.”

Terry and Belinda Kilby, a couple from Baltimore, use drones for their photo business. Four years ago, Terry bought “a kind of a gum stick camera” and stuck it to the bottom of a remote-controlled model aircraft. “It started off as a joke,” Terry said. “We flew it and took a few photos, and they were terrible, but my wife saw the potential.”

Belinda, a former art teacher, instantly saw the traits that existed in past artistic movement. “Such as the impressionist movement or Japanese prints—they often had a birds eye view of their subjects,” Terry said. “She saw the same sweet space—of being above a crane and below the plane.”

They started a two-person operation, in which Terry designed, built and flew the drones, and Belinda controlled the camera. They soon produced Drone Art Baltimore, “ which is the first photography book ever to be shot entirely by a drone.”

By 2012, this artistic adventure turned into an entrepreneurial success with several land developers, real estate dealers and architects contacting the couple to shoot for them. Jeffery Penza, the owner of Penza + Bailey architectural firm in Baltimore, wanted to create a floor plan for the renovation of an 80-year-old penthouse and needed to photo-document it. “There were no drawings of the building whatsoever,” Penza explained.

Penza hired the Kilbys to bring their drone and asked them to capture the roofline of the penthouse. “We were able to identify a window that had been covered up with the plaster. We didn’t know it was there until we saw the photographs,” said the architect.

Like several other drone photographers across the U.S., Terry has decided to fly for commercial reasons. It usually starts as a hobby and serendipitously turns into a business. Since obtaining permission from the FAA is an arduous task, the operators sidestep the agency. “There is kind of a legal gray area because the FAA is yet to pass any rules either for or against us,” Terry said. “So we police ourselves—we do everything possible to make sure all of our flights are safe.”

The rising demand for drones has convinced the industry to manufacture the aircrafts of different shapes and sizes with an ability to take wide range of tasks—from Amazon-type deliveries to transporting heavy-duty goods both nationally and internationally. To achieve that vision, instead of taking “crawl-walk-run approach”, the drone enthusiasts want to move fast.

“The FAA can clearly do more,” said Gielow, the drone lobbyist. “We have been saying that on the Hill. We would like to see FAA taking a risk-based approach. I mean we need at least a limited access now and then we can build upon that and allow more widespread integration in future.”

Many drone advocates fear that the ongoing delay will make the U.S a laggard, behind countries like Canada, which issues flying permits in couple of weeks. In 2013, Canada’s airspace regulator issued 945 drone permits—a significant increase compared to 345 issued in 2012. Here in the U.S. the FAA has issued 700-750 authorizations since 2006.

Brendan Gibbons, one of Pham’s students at the University of Missouri, covers the environment beat for Scranton’s The Times-Tribune. At the university, he filmed the fracking wells along the Missouri River. “I was pleased how I could edit together the pump jacks which are those up-and-down bobbing, hungry dinosaur looking things, and then shots of the rig, and of the river behind it—you can really see how close these operations were to the river,” he recalled.

As a journalist, however, Gibbons feels restrained in his reporting by the FAA. Last month, while covering a massive factory fire near Scranton, he wanted to fly a drone and capture the fire. Despite what he learned in the drone journalism classes, he was forced to rely on other means to do his reporting. “What is unfortunate about the FAA regulations is that we had to get that photo from a reader,” Gibbon said. “Somebody who lived around that site had a hobby drone flown over the fire. We traced that person online and got the photo from him.”

UPDATE, August 28, 2014: An earlier version of this story stated that the university asked Pham to remove drones from the classroom and that the class was ultimately shuttered, which is inaccurate. Fortune regrets the error.