Monthly Archives: June 2014

Competitiveness in the Launch Services Industry – Impact of Various Factors in the Launch Contract and in Liability Provisions of Government Launch Regulations

As I mentioned in my last blog, the ABA Air and Space Forum had an interesting Space Law Symposium last week.  Included among the panels was one on launch vehicle contracts that had representatives from SpaceX, Arianespace, and ILS.  One important perspective to examine and compare some of the topics covered and main points made at the ABA Symposium’s launch contracts panel is competitiveness.  Keep in mind price is likely the primary factor in customer decisions, but price can be influence by many other factors:

  1. Dispute Settlement: Arbitration is the typical dispute settlement mechanism chosen in launch contracts, although disputes are often settled more informally. No surprise given that many customers are repeat customers and arbitration has become a bit more litigation-like, in terms of increase costs, length of proceedings, etc. It used to be thought that arbitration was preferable to litigation in part because companies were better able to preserve existing business relations, but in the space industry launch companies are leery of even resorting to the arbitration clause except in the most extreme circumstances due to the desire to keep existing customers and the competition among launch companies (i.e. fear of customer contracting with a competitor).
  2. Export Credit: Both the US Ex-Im Bank and the French export credit agency (COFACE) are involved in satellite manufacture and launch financing. Indeed, Ex-Im’s satellite financing is the fastest growing sector in its portfolio. This development eliminates the competitiveness disadvantage that would occur to US launch companies and satellite manufacturers if COFACE was in the game and Ex-Im Bank was not. ILS in turn is interested in taking advantage of a new Russian export loan guarantee program. Interestingly, COFACE financing can even indirectly benefit US launch providers. For example, COFACE was involved in financing Iridium satellites built by Thales Alenia and launched by SpaceX. Sure enough, since the financial crises of 2008, export credit agencies are playing an increasingly important role in satellite deals.
  3. Space Insurance & Re-Launch Guarantees: Although launch companies often offer re-launch guarantees, they are rarely part of the launch contract as they are not a popular option among launch customers. Customers prefer to purchase launch insurance in a package of insurance coverages that might lessen total insurance cost and keeping in mind that re-launch guarantees do not come for free – one way or another they have to be built into the launch price. Thus, launch companies are not competing amongst one another through the offering of re-launch guarantees – offering such policies has little to no impact on competitiveness. (One additional interesting note – a few customers do not purchase launch insurance and simply self-insure against such a possibility or assume the risk).
  4. Third-Party Liability: France caps third-party liability of Arianespace launches at roughly 60 million euro. Arianespace purchases insurance for that amount but is not responsible for any damages exceeding that amount. Russia, in essence, caps liability for large rocket launches such as the Proton at $300 million dollars. In the United States, a three-tiered regime exists: In the first tier, launch companies must obtain insurance covering the Maximum Probable Loss (MPL) –it averages around $80-90 million, although recent SpaceX launches have MPL’s as low as $36 million. In the second tier, the US government promises to indemnify companies for the next $2.8 billion in third-party damages, although it is important to realize that in order for this promise to be realized it will take an appropriation law passed by Congress.  Further, this promise of indemnification has lapsed for short periods and has only been extended for one to three years when renewals have occurred recently. The current promise of indemnification expires January 2017. In the third-tier, that applies whenever third-party damage exceeds the first-two tiers ($2.8 billion plus MPL), the liability reverts to the operator. In short, US launch industry’s competitors benefit from a third-party liability cap while the US launch industry relies on limited promises of government indemnification. Since liability regimes impact contractual negotiations and could ultimately impact launch price, US industry is placed at a competitive disadvantage in this respect.

(c) Copyright: Matthew Schaefer.  All Rights Reserved.

Advertisement

Stopping Intentional RFI – Some Additional Thought Post-ABA Space Law Symposium

I attended the ABA Air and Space Law Forum’s Space Law Symposium last week (6/10/2014) at Jones Day law firm in Washington, D.C. There were plenty of interesting panels, including one on radio frequency interference (RFI), that inspired a few follow-up thoughts and points to (re)emphasize from my three part blog last week on the search for concrete enforcement tools to combat intentional RFI with satellites.

Inter-Relationship Between US-EU Tools and ITU Efforts

Efforts are underway to improve and strengthen ITU processes in instances of intentional RFI, however, these efforts are unlikely in the near term to lead to real enforcement “teeth” for the ITU given the largely one-nation, one-vote processes within the 193 member nation ITU. Unilateral action in tandem by the US and EU to enact and implement two concrete enforcement tools, namely (a) including compliance with ITU harmful interference obligations and cooperation with ITU and other processes to halt instances of intentional RFI as an eligibility criteria for trade preference programs like the Generalized System of Preferences (GSP); and (b) imposing sanctions against individuals engaged in intentional RFI by freezing their assets and bank accounts – does not foreclose continuing to seek in parallel stronger ITU obligations and processes. In fact, in addition to providing more immediate “teeth” to stop cases of intentional harmful interference with satellites, these measures taken in tandem by the EU and US may buttress efforts to strengthen processes in the ITU. Countries facing the possibility of “sanctions” measures from the two largest markets in the world may simply prefer to have strengthened ITU governance and enforcement of the issue.

“Multilateralizing” Sanctions

The US and EU can work to expand the GSP eligibility criteria to other industrialized nation’s offering trade preferences, but, the US and EU are the two markets that already contain good governance and human/labor rights-related conditions for eligibility. Additionally, sanctions against individuals can be crafted in a way that does not penalize EU and US satellite companies from business opportunities (e.g. simply go after bank accounts of individuals) and/or efforts can be made to “multilateralize” such sanctions to also eliminate any potential competitive disadvantage to EU and US satellite operators. With predictions made that most intentional RFI is mostly driven by “rogue regimes” into the future, sanctions used for other significant foreign-policy interests may make sense in the case of intentional RFI as well, although the RFI issue may inevitably take a backseat to other higher foreign policy interests in certain cases. Cases of intentional RFI have dramatically increased over the past five years, and although there may be some leveling off very recently this year, it’s use as an anti-democratic, anti-human rights tool will likely continue if further action to curb it is not taken.

Technological Solutions and their Relationship to Concrete Enforcement Tools and ITU Processes

Technological developments continue apace in the fight against intentional RFI. These include enhanced geolocation and carrier ID as well as data sharing in the Space Data Association. These developments will help quicken the cure in cases of unintentional interference but will also help in cases of intentional interference in assigning responsibility and reducing chances for plausible deniability. This in turn could lead to better cooperation by certain administrations with the non-binding ITU processes but also strengthen the case for use of enforcement tools described above when enhanced cooperation from the more definitive, assigned responsibility does not result.

Again, stay tuned for more on stopping intentional RFI in my forthcoming article.

Also, stayed tuned later this week for one more blog (non-RFI related) flowing from the ABA Space Law Symposium.

© Matthew Schaefer. All rights reserved.

Part III – IEEPA Sanctions v. Individual Gov’t Officials – The Search for Concrete Enforcement Tools re Intentional RFI with Satellites

One additional option for a concrete enforcement tool to stop intentional RFI against satellites is for the US and European governments to sanction individuals (even government officials) engaged in intentional RFI with satellites.

Options #3: Employ International Emergency Economic Powers Act (IEEPA) Authority to Sanction Individuals (including foreign government officials) Engaged in Jamming Satellite Signals in A Manner Injurious to US National Security or US Economy.

Some of the RFI incidents meant to stop information flows to citizenry in particular countries has caused collateral damage that has disrupted US military, diplomatic, and other government (e.g. FBI) communications.  The IEEPA gives the President broad authority “to deal with any unusual and extraordinarythreat, which has its source in whole or substantial part outside theUnited States, to the national security, foreign policy, or economy ofthe United States, if the President declares a national emergency withrespect to such threat.” Specifically, the President may, among other actions, “investigate, block during the pendency of an investigation, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest by any person, or with respect to any property, subject to the jurisdiction of the United States….” Recently, the President used IEEPA authority to sanction former and current Russian officials involved in the situation in Ukraine and also individuals involved in the arms sector and other important sectors of the Russian economy.

The President presumably has the authority to use IEEPA to sanction government officials involved in the jamming of satellite signals if the action or the collateral consequences of such actions threaten US national security or the US economy. Even making rumblings of using such authority for intentional RFI used to suppress democratic movements and/or an informed citizenry could help increase cooperation of officials responsible for the intentional RFI or responsible for taking necessary actions under the ITU radio regulations to stop intentional RFI from occurring. As stated by the Director of Treasury Dept.’s Office of Foreign Assets Control (OFAC) in a 2007 report: “The impact of these sanctions has been significant and, at times, dramatic. When OFAC designnates an individual or entity, any assets within the United States or the possession or control of a U.S. person anywhere in the world, must be frozen. Trade with or through the United States is cut off. Moreover, many non-U.S. businesses and banks have voluntarily severed all ties with individuals and entities that OFAC has listed. As a result, designated persons may lose access to their bank accounts outside the United States, disrupting their operations and freedom of access.” Of course, if the officials do not have assets abroad in the US or in the possession or control of a US person, the sanctions may not have much impact unless non-U.S. businesses and banks do in fact follow suit. (Russian Deputy Prime Minister Dimitry Rogozin tweeted out this point to President Obama following his listing under the recent Executive Orders). The EU has also blocked the assets of individual Russian officials involved in the Ukraine situation, although achieving consensus among the 28 EU member states for these types of sanctions can be difficult. See http://rt.com/news/sanctions-russia-eu-us-338/

 

Summary of Part I, II, III of “In Search of Concrete Tools”: A few concrete (legal) enforcement tool options to assist in stopping intentional RFI do exist – two in the hands of governments (Option 1 of making compliance with anti-harmful interference obligations an eligibility criteria for developing countries under GSP and other trade preferences and Option 3 of imposing economic sanctions against individual government officials) and one in the hands of private operators suffering RFI (suit in domestic courts under FSIA or analogous statutes).   The governmental options will not interfere with any US or European government military freedom, at least not directly. The question is whether concern over intentional RFI (and its collateral consequences) has reached a level that will have the US and EU governments consider adoption of either of the governmental options. Development of real enforcement teeth within the ITU is unlikely, although again those processes can be further strengthened. I should reiterate that technology plays a very important role in solving the problem, and the law is there to buttress or backstop the technological developments.

Again, stay tuned for my forthcoming article on this topic.

© Copyright: Matthew Schaefer. All rights reserved.

The Search for Concrete Enforcement Tools to Stop Intentional RFI with Satellites – Part II – Suit in Domestic Courts?

Last Thursday, building upon my May 22nd remarks at the 30th Annual National Space Symposium RFI panel sponsored by Secure World Foundation, I suggested a possible concrete enforcement tool to help stop intentional radio frequency interference. Specifically, I recommended that the US and the EU give strong consideration to making compliance with ITU prohibitions on harmful interference and cooperation with ITU and other processes to resolve instances of RFI an eligibility criteria for developing countries to receive trade preferences under the Generalized System of Preferences. Another potential (new, “outside-the-box”) concrete tool that I mentioned in Colorado Springs, one that I think is likely to be less successful and more problematic but still worth analysis, is suit in domestic courts against the foreign country (or foreign country-owned operator or agency) engaged in intentional RFI impacting satellites.

Option #2: Suit against Foreign Nation (or Foreign Nation-owned operator or agency) engaged in intentional RFI under the FSIA in the US Courts (or analogous statutes in European countries)

Suing a foreign nation in another country’s domestic court system raises issues of foreign sovereign immunity. International law no longer requires that absolute immunity be given to foreign sovereigns in such situations, but rather the “restrictive theory” of immunity – one that acknowledges exceptions to immunity, particularly for commercial activity, is now all that is required by customary international law. In the US, suit of a foreign sovereign is governed by the Foreign Sovereign Immunity Act (FSIA) and it is that statute that will provide the framework of our analysis. Many countries have similar statutes, although with different or lesser exceptions to immunity present.

Would a suit against a foreign nation in US courts for intentional RFI with a satellite be possible? Well, we should perhaps first begin by saying anyone thinking of attempting such a suit would have to consider any “out-of-court” retaliatory penalties that might be brought to bear by the foreign nation upset with the filing of such a suit. Any entity thinking of such a suit would also need to consider whether they would want to reveal “methods” of establishing the intentional RFI was taking place as part of the necessary evidence to prove their case.

With those preliminary considerations acknowledged, a suit against a foreign sovereign in US courts necessarily has one turn first to the FSIA. The FSIA provides the sole basis of jurisdiction (both personal and subject matter) over of foreign state in US courts; the establishment of jurisdiction is linked to finding an exception to immunity. Foreign states are presumed immune unless the statute provides an exception to immunity. The definition of foreign state includes agencies and instrumentalities of the foreign state. The exception that is most widely-used is the commercial activities exception (Sec. 1605(a)(2)).

The commercial activities exception, in the third clause, allows for an exception to immunity “in which the action is based upon … an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.” Intentional RFI by the foreign nation would take place outside the territory of the US. However, several hurdles also need to be cleared. First, is RFI done “in connection with a commercial activity of the foreign state”? Second, does the RFI cause a “direct effect” in the United States? As regards commercial activity, the statute, although not defining the terms, does instruct courts to look to the nature not the purpose of the activity. The US Supreme Court has defined commercial activity to be the type of activity by which a private player in the market engages in trade, traffic and commerce. Thus, it should not matter whether RFI is done for the purpose of inhibiting information flow to citizenry or to quell potential democratic uprisings. It is the nature of the activity that matters. If one narrowly defines the activity as simply RFI, then RFI does not seem to be the type of activity by which private (satellite) operators engage in trade, traffic, and commerce. But if one defines the activity more generally as temporary negative actions to defeat a competitor’s market share or reputation for reliability, that could push a court closer to finding the nature of the activity to be commercial.

For those familiar with key US Supreme Court cases in the area, think back to the Nelson case, where the Court found beating and imprisonment of an employee to not be commercial activity. However, if the activity were argued to be whistleblower retaliation – Nelson had reported safety violations at the hospital he worked at — it might have come closer to a commercial activity.

Additionally, the third clause of the FSIA commercial activities exception refers to an action “in connection with a commercial activity” and thus provides a bit of flexibility for what might be captured by the exception.  As for direct effect, the question is whether a loss of money flowing into a US bank account and/or lost profits to a US corporation are sufficient to meet that condition. Some lower court opinions suggest at least one of those may be sufficient. In sum, suit under the FSIA commercial activity exception to establish jurisdiction appears difficult but not necessarily impossible where a foreign state-owned operator or one of its agencies is engaging in RFI. What is impossible is a claim against a foreign nation’s regulatory agency for refusing to “go after” a private operator engaging in intentional RFI because the foreign nation is then acting clearly in a regulatory (non-commercial) nature.

Additional hurdles might need to be cleared and additional complexities might arise once jurisdiction is established. ITU regulations do not create private rights of action in the United States according to court decisions and thus they cannot form the basis for a private right of action. The tort exception limits the type of claims that can be made – so would have to find an appropriate tort claim covering the activity. Questions arise as to which nation’s tort laws should be applied after undertaking conflict of laws analysis. Further, it is possible that arguments might be made that federal law preempts state tort law claims for RFI in space. And, of course, enforcing such a judgment could raise additional complexities under the FSIA. The US Executive Branch is also likely to file an amicus brief in opposition as the US government would not want to be exposed to suit in foreign court. (Remember a key benefit of proceeding with Option #1 – eligibility criteria for trade preference status by developing countries – is those obligations are one-way and in no way implicate US or European military actions – see prior blog post).

In sum, there are enough hurdles to be cleared and potential pitfalls with the FSIA option that any litigant would need to be satisfied that filing an even unsuccessful suit is still a useful addition to the “name and shame” approach to stopping intentional RFI with satellites.

You can find more detailed analysis in my forthcoming article.

© Copyright: Matthew Schaefer. All rights reserved.

The Search for Concrete Enforcement Tools to Stop International Radio Frequency Interference with Satellites

Two weeks ago, I sat on a panel on radio frequency interference with satellite services and its impact on space sustainability at the 30th Annual National Space Symposium in Colorado Springs.  The panel was hosted by the Secure World Foundation and moderated by their President Mike Simpson.  Satellite operators are frustrated by the lack of “concrete tools” or enforcement mechanisms available to stop episodes of intentional harmful interference and ensure that International Telecommunications Union (ITU) Constitution Art. 45 (prohibiting all stations from causing harmful interference) and the ITU radio regulation No. 15.1 (prohibiting unnecessary and superfluous transmissions and false and misleading signals) are complied with.  Keep in mind that jamming of signals often has unintended consequences and causes wide-ranging effects in some cases.

The ITU made public appeals to a government to stop intentional RFI with satellite signals for the first time in 2010, however, the success of this “name and shame” approach has been limited.  In 2012, modest changes were made to ITU’s radio regulations seeking to emphasize the need for national administrations to take action to stop RFI when presented with evidence.  Radio Regulation 15.21 now reads: ” If an administration has information of an infringement of the Constitution, the Convention or the Radio Regulations (in particular Article 45 of the Constitution and No. 15.1 of the Radio Regulations) committed by a station under its jurisdiction, the administration shall ascertain the facts and the necessary actions.”  However, there are still no teeth behind the obligation to ensure its enforcement.  The ITU Radio Communication Bureau and the Radio Regulations Board can seek to assist and issue recommendations but these are not binding.  It is unlikely the ITU will be granted enforcement powers.  Similarly, the major space treaties, such as the Outer Space Treaty, fail to contain enforcement mechanisms. (For a good background read on RFI and also ITU and space treaty weaknesses in addressing RFI, see Sarah Mountin, The Legality and Implications of Intentional Interference with Commercial Communications Satellites, Vol. 90 International Law Studies (of the US Naval War College), available at https://www.usnwc.edu/ils).

However, there exist some options for “concrete tools” or enforcement mechanisms as I mentioned during my talk at the National Space Symposium.

Those concerned with intentional RFI with satellites can take some loose inspiration from the intellectual property community who grew frustrated with IPR treaties lacking enforcement teeth, and subsequently worked beginning in the late 1980′s to have IP obligations engrafted into US trade preference programs, free trade agreements, and even the World Trade Organization – using those as concrete tools to enhance enforcement of IP obligations.  (Those mechanisms to be sure are not perfect, and indeed RFI solutions lie primarily with the engineers and techs but law can buttress and provide a backstop in egregious cases).

Option #1: The US and EU can make compliance with ITU Constitution Art. 45, Radio Regulation No. 15, and full cooperation with ITU or other processes to stop RFI an eligibility criteria for the Generalize System of Preferences (GSP) and other trade preference programs for developing countries.  In fact, it will be important for the EU to act in tandem with the US because several countries alleged to be engaged in intentional RFI benefit from EU trade preferences but not US trade preferences.  The benefits of this approach are numerous: 1) it provides enforcement teeth to the ITU obligations on harmful interference; 2) it will not cause any concerns or diplomatic issues with the vast majority of GSP beneficiary countries who do not engage in intentional RFI and who are already accustomed to eligibility criteria requiring effective IPR protection, compliance with international labor standards, reducing of foreign investment barriers, and others; 3) the eligibility criteria can be reviewed in manner that are mindful of the ITU Constitution’s exception for security and public order (Art. 34) and for military stations (Art. 48) and other exceptions; 4) it is a pro-democracy measure as many major incidents of intentional RFI in the past-five years have been undertaken in efforts to stop information flows to citizenry and  (potential) democratic uprisings; 5) it is a pro-human rights measure given the International Covenant on Civil and Political Rights Art. 19(2) provides: “Everyone shall have the right to freedom of expression; this right shall include freedom to seek, receive and impart information and ideas of all kinds, regardless of frontiers, either orally, in writing or in print, in the form of art, or through any other media of his choice.” – although there is a public orders exception here too; and 6) because the obligation is one-way it will in no way impede US military operations which in any event are covered by the aforementioned exemption in ITU Constitution Art. 48 – and for that reason the US should take care before placing such obligations in free trade agreements that have two-way flowing obligations.

Of course, this solution is an enforcement mechanism only for those countries that benefit from trade preferences from the EU or US – but that is over 140 countries.

Stay tuned to this blog for a couple more new, “out-of-the box” ideas on concrete enforcement tools for the ITU’s harmful interference obligations – one of which I mentioned in Colorado Springs and one additional one.  I have an article coming out on all of these possible enforcement tools in the near future too.

(c) Copyright: Matthew Schaefer.  All rights reserved.