Words Matter: Regulation vs Regulation

Words matter.  Although Lewis Carroll’s Humpty Dumpty was perhaps wrong to claim that words meant what he wanted them to mean, it’s still helpful to remember that sometimes people mean different things.  This may be so with the term “regulation.”

“Regulation” as Oversight  As a former regulatory bureaucrat I always thought of “regulation” as meaning that some part of the government gets to tell someone not in the government (a “private actor”) what he or she must or may not do in some specific context.  The Federal Aviation Administration is a great example of a regulator.  It tells builders and operators of aircraft what they must or may not do via certificates, regulations, orders, exemptions, and a host of other regulatory mechanisms; and that’s just on the aviation side.  On the space transportation side of the agency, the FAA regulates launch, reentry, and non-federal spaceports, including those operated by states.

The FAA issues regulations through rulemaking.  If a private actor violates one of the agency’s regulations the FAA may impose fines in the form of civil penalties or revoke the private actor’s authorizations to fly or build an aircraft or launch a launch vehicle.  I long thought this was what everyone meant by regulation.

“Regulation” as the Rule of Law.  I think I was wrong.  In the past year or so I’ve heard other references to regulation that left me quite puzzled at first.  They did not apply to some part of the executive branch telling the private sector how to conduct itself.  Instead, these people spoke of regulation more as a sort of order.  Some wanted regulation and title to protect property rights.  Investors wanted regulation for certainty, so they would understand the lay of the land.  When questioned more specifically, some investors turned out to want rules of the road, not a series of authorizations and rules.  (Others, by the way, the ones who wanted what I think of as regulation, stressed they did not want a lot of it.  That was bad for business, too.)

This broader use of the term regulation suggests that people want to understand what law applies.  Specifically, the question of certainty over property rights appears to loom large.  That concern I understand.  If a private actor spent a fortune and decades of his or her life getting to the Moon, that person might worry that the investment might not be protected by the rule of law out where no nation has sovereignty.  After all, how will two private entities handle disputes when they both lay claim to the same patch of ice on the Moon?  Who will decide such disputes?  What law will apply?  What if another country wants to claim the lunar village you just finished building?

Words of Caution.  These are important questions.  The critical thing is not to mix the questions up with regulation, “real” regulation, if I may be allowed to call it that.  Assigning some agency in the federal government to authorize lunar roving does not address the questions of how to tell who owns what, how to handle disputes, how to ensure that no one takes someone else’s hard work, or what law will apply.  Those people looking for rules of the road should avoid asking for regulation.  They should be more specific and say they want certainty about property rights or the rule of law.  If they ask Congress for “regulation,” they’ll get it.

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High Grade Ore by Lee Hart

One may find space law anywhere.  Stanza 4 contains an interesting approach to verifying a claim. Also, the whole ballad is totally cool. Mr. Hart kindly gave me permission to share this here, and a band will be setting it to music. LM.

High Grade Ore
by Lee Hart

Now Murphy was a spacer; a miner, nothing more.
A bit of human jetsam lost in night’s Plutonian shore.
Until he found that asteroid, and entered into lore;
Him and 40 kilotons of high grade ore.

He’d manned his tiny ship alone, a year or maybe more.
A flea among the asteroids; homeless, starving, poor.
Each rock with only traces of what he searched ’em for.
Hunting for his holy grail of high grade ore.

The radar caught his vector, heading for L4.
With delta-V a little high, but fusion drive full bore.
“Cap’n Murphy callin’ in this day of August 4.
‘A claimin’ 40 kilotons of high grade ore.”

The base assayer radioed, “You’ve heard the rules before.
Your claim’s no good until you land that worthless hunk of ore.
And then I’ll have to analyze its purity before
You own that 40 kilotons of high grade ore.”

“Jesus, what you burning there?”, the port controller swore.
“There’s colors there in your exhaust I’ve never seen before”.
“Just gum’ment forms”, said Murphy, “and rulebooks by the score”.
“To help me trim this delta-V, that’s all I kept ’em for”.

“Murphy, there’s a lawyer here, from Cheatham, Ripp, and Gore.
He says your bills are way behind, a year or maybe more.”
“Jes’ stand him on me landin’ pad, I’ll pay him off for sure.
And drop him 40 kilotons of high grade ore.”

The radar station checked the course, then checked it even more.
It seemed that Murphy’d land a thousand yards below the floor.
The operator called it in, then headed out the door.
“I’ll take my last vacation day, that’s what I saved it for!”.

“Veer off, ya goddam lunatic!”, the base commander swore.
“That rock’ll smash a hole in us a mile wide or more!”
“Now don’t you worry”, Murphy said, “I’ve done this thing before.
It’s only 40 kilotons of high grade ore.”

And then the fusion drive waxed bright, full thrust or maybe more.
The tiny ship, it floated down; the rock, it towered o’er
Straining every rivet with a load like Atlas bore.
To stop that 40 kilotons of high grade ore.

The falling mountain slowed, then crawled, then gently kissed the floor.
The fusion drive ran out of fuel in just a second more.
And as the engines died away, the scale of Smelter 4
Was reading 40 kilotons of high grade ore.

A mob raced to the landing pit, there must have been a score
To cheer the god, or curse the fool who’d shown them all death’s door.
They found no man, they found no ship; an engine, little more
Beneath that 40 kilotons of high grade ore.

The cold equations do not lie, nor cheat like some old whore.
He knew them better than his wife (who’d left the year before).
Murphy didn’t have the fuel to make the dock secure
While pushing 40 kilotons of high grade ore.

A fusion drive burns anything; that’s what they use ’em for.
So piece by piece, his ship he fed the grim reactor core.
And when it all was not enough, he entered through that door
To stop his 40 kilotons of high grade ore.

The assay team reported something odd about this ore.
They saw where Murphy’d tried to cut; that hadn’t worked for sure.
They tried to chisel, burn, and blast, and finally they tore
A bit off 40 kilotons of high grade ore.

The chief assayer checked it out, and tallied up the score.
The density was very high; few elements are more.
Its hue, its malleability; its carats — 24!
My God, it’s 40 kilotons of pure gold ore!

No one has yet discovered just where he found that ore.
But Murphy’s gold put us in space; a million men and more.
The future destiny of man, now it is secure.
Thanks to a lonely miner and his high grade ore.

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This New Ocean II

Although not all space lawyers are mesmerized by the Deep Seabed Hard Mineral Resources Act (the Deep Seabed Mineral Act), I confess that I am. Accordingly, when the Deep Seabed Mineral Act offers a model of a regulatory scheme for resources extracted from the global commons, taking a peek at new happenings under that law can prove irresistible.

Regular readers may recall that back in April of this year the National Oceanic and Atmospheric Administration asked for comments on a request for a license extension from Lockheed Martin Corporation, one of NOAA’s licensees under the Deep Seabed Mineral Act. NOAA approved the requested five-year extension of Lockheed’s exploration license. The extension maintains Lockheed’s proprietary interests but does not authorize Lockheed to conduct “at-sea exploration activities” under the license. Instead, NOAA must perform additional authorization and further environmental review before Lockheed may conduct exploration at sea.

I wondered in April whether competitors or environmental groups might file comments. Now we know. NOAA had requested comments specifically from the Department of State and the Western Pacific Fisheries Management Council. State had no objections or comments. The Council found that none of the fisheries under its jurisdiction would be affected by the onshore activities Lockheed described in its request and did not object to the extension. Depending on the location of the fisheries and the mining targets, the Council could theoretically object later to actual exploration.

NOAA received five other comments. A review of the docket shows they appear to come from individuals. The commenters’ objections fall into three categories: environmental, international, and claims that Lockheed failed to substantially comply with its license and application plan. One commenter objected to Lockheed’s rationales for requesting an extension, namely, that economic conditions are not ripe and that the U.S. must accede to the 1982 Law of the Sea Treaty. NOAA’s responses are available here.

What’s interesting about all the objections to the extension is that it shows that the regulatory agency, NOAA in this instance, could have found that the licensee had not substantially complied and thus denied the request for extension. This means that one’s business plans and prospects may lie outside a company’s control. To the extent that a company has not managed its relations properly with the regulator or filed only a cursory statement of its progress it may place itself at regulatory risk. Additionally, the participation of the public provides another opportunity for the throwing of monkey wrenches into the works. While such a regulatory regime is affordable for companies with the infrastructure to cater to its care and feeding, smaller companies may not have the same resources.

The commenter linked to above provides a good example of the type of comments a competitor might have filed. If someone else wanted a license to mine where the first licensee had yet to act, the new competitor might make arguments about the equities of letting a claim be hoarded rather than worked, and the regulator might be persuaded despite the investments the first company had made.

For those interested in a similar regulatory regime for space, it might be advisable to proceed with caution.

 

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But What About Parking Fees for Asteroids?

Space law is not exactly awash in court opinions. There are statutes. There are regulations. There are not a lot of cases. If, therefore, someone is interested in looking at property rights in space and remembers the case about the fellow who tried to charge NASA parking fees for landing on his asteroid, it behooves one to check out the actual court opinion.  There is one dismissing the fellow’s claim, and this is what I found.

The court’s dismissal of the complaint for failure to state a claim: Back in 2003, Mr. Gregory Nemitz filed a complaint against NASA for parking fees for NASA’s NEAR spacecraft landing on “his” asteroid. He alleged violations of the Fifth, Ninth, and Tenth Amendments of the Constitution, an implied breach of contract, and violation of Congress’s declaration of policy and purpose for NASA. The U.S. Government asked the court to dismiss the complaint. In his opposition to the United States’ Motion to Dismiss, Nemitz stated that “he does not seek a declaration from this Court that he has an ownership interest in” the asteroid at issue. Noting the inadequacy for “creating a property interest,” meaning establishing that he owned the asteroid, of Mr. Nemitz’s various filing under California’s Uniform Commercial Code and registration with the Archimedes Institute website, not to mention his disavowal of a request for a finding that he had a property interest, the Court held that Mr. Nemitz failed to assert a legally protectable property interest in the asteroid. Continue reading

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Space Property Rights: More Common Law than Marxism, But That’s a Good Thing

I’ve been reading a lot of law review articles recently, and I feel like sharing.  In Deploying the Common Law to Quasi-Marxist Property on Mars,  Professor Thomas E. Simmons attempts to meld ye olde common law with a Marxist view of property rights.  I’m not so sure it’s all that Marxist, but he tries to come up with something with enough Marxism to satisfy the intent of the 1967 Outer Space Treaty–which we are reminded was negotiated with the former Soviet Union–while still giving the risk takers who settle space some measure of certainty and incentive for their efforts. Continue reading

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Podcast for Hotel Mars Now Available

I had a fun chat with John Batchelor and David Livingstone about the Outer Space Treaty and related issues on their show Hotel Mars.  The podcast is now available on John Batchelor’s site here where I understand it will remain for a week or two.  Just to be clear, I’m sure that I said the Outer Space Treaty was flexible, rather than that it contained loopholes. “Loopholes” makes something sound like a bug, not a feature. Also, the podcast is available permanently on David Livingston’s The Space Show site here.

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This New Ocean

This isn’t space law, but it feels like space law.  Or, to put it more pedantically, this application to the National Oceanic and Atmospheric Administration from Lockheed Martin Corporation to extend its deep seabed mineral exploration licenses contains interesting parallels to the mining of celestial bodies.  The mining would take place outside of anyone’s sovereign territory.  As a review of Lockheed Martin’s application shows, it’s technically very difficult.  Also, there’s a treaty that Lockheed is waiting on the United States to ratify, somewhat like some space miners are waiting for Congress set up a regulatory structure for them before they will start mining.   There is an International Seabed Authority, much as some, including the signatories of the Moon Treaty, would have there be an international authority for extraterrestrial activity.  Unlike for space miners, Congress did pass a law, the 1980 Deep Seabed Hard Mineral Resources Act, to regulate and administer seabed mining.

NOAA’s Federal Register notice links to the application itself.  In its application, Lockheed Martin states that it:

requests an extension of the seabed exploration licenses for the two Lockheed Martin claims, USA-1 and USA-4. NOAA renewed these licenses in 2012 enabling us to continue our investigation into the viability of exploration and development of the USA-1 and USA-4 licensed areas. Since the most recent 5 year license extension was granted, the Corporation has made significant progress against Phase I of its Exploration Plan.1 However, during the same period, progress on the Exploration Plan has been delayed due to the prolonged, severely depressed state of the metals markets and continued delay in resolving the security of tenure issues given the lack of ratification of the U.N. Convention on the Law of the Sea.

It would be very interesting to know why Lockheed sees the lack of ratification of the UN Convention as an impediment to going forward, but I found no additional detail or explanation in the Lockheed application for this tantalizing tidbit.

A quick internet search unearthed this comprehensive review of the 1982 UNCLOS.  Writing in 2012, Steven Groves of the Heritage Foundation explains how U.S. companies can engage in seabed mining without joining UNCLOS.  For one thing, the United States has entered into a series of agreements with other nations to, among other things, resolve conflicting claims and to notify each other when approving applications for exploration. A number of nations

have made a commitment to the United States that they will not interfere with or infringe on the claims by the United States or its companies in the CCZ. None of the nations has denounced or withdrawn from the agreements or has otherwise indicated that it does not respect its international commitments to recognize U.S. claims in the CCZ.

As a legal matter the article notes, the countries who are part of  UNCLOS “cannot prevent the United States or any other nation from mining the seabed any more than they can prevent the U.S. from exercising the freedom of navigation and overflight, the freedom of fishing, or any other high seas freedom.”

Simply because most nations have ratified UNCLOS does not mean that those nations or any international organization, such as the Authority, may deny a right to the United States that it enjoys under international law. One set of nations cannot annul the rights of another set of nations by drafting a treaty that the second set of nations chooses not to join.

(From the perspective of Article II of the Outer Space Treaty, which bars national appropriation of celestial bodies, it is interesting to note that no nations claim sovereignty over the deep seabed yet those nations may recognize claims.)

Groves’ article sums up the state of affairs for security of tenure:

In sum, acting under the authority of DSHMRA, customary international law, and multilateral agreements with foreign countries and companies, the United States has successfully claimed and maintained security of tenure over vast tracts of the deep seabed. The U.S. has done so as an independent sovereign nation exercising its inherent rights.

Groves’ discussion highlights a number of areas of concern for U.S. companies, including environmental measures, inspections, data sharing, and, most significantly for a company with fiduciary obligations to its shareholders:

Under an UNCLOS regime, a U.S. company would have limited control over the area licensed to it for exploration. Once a U.S. company identifies an area of the seabed that it wants to explore, it must divide the area into two halves of equal estimated commercial value and share its data on the area with the Authority.[51] Thereafter, the Council reserves one half of the area for exploration by developing countries or the Enterprise, the Authority’s mining arm.[52] The remaining half would be licensed to the U.S. company for exploration. The size of the U.S. company’s half is effectively limited to only 75,000 square kilometers.[53] (By comparison, the USA-1 exploration area is almost 169,000 square kilometers.[54] Finally, a U.S. company would not have exclusive access to its half because the Authority has the right to enter into contracts with third parties to explore and mine the U.S. half for resources other than polymetallic nodules.

According to NOAA’s Federal Register notice, it seeks comments from the public by May 22, 2017, on Lockheed Martin’s request for an extension.  It will be interesting to follow this docket and see if anyone objects to the extension.  Might competitors file?  Might environmental groups?  Might those who think this a fine regulatory model for outer space be deterred by the thought that others get to comment on and thus delay their business plans?

Bonus points to anyone able to identify the source of this post’s title.

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The “Non-Interference” Provision of Article IX of the Outer Space Treaty and Property Rights

Sometimes when you start a new project or line of inquiry it’s helpful to knock out the deadwood first. Then you can work on the bits that will get you somewhere. I want to understand private property rights in outer space, and lots of people say the Outer Space Treaty forbids a private person’s rights in “real property,” namely, land. Article II of the Outer Space Treaty isn’t deadwood. It forbids national appropriation in outer space. Article IX, however, might be. I want to address it first because I have heard theories floated about how it may protect some property interests.

In law school we learned that property rights were a collection of rights, which one could separate and parcel out. My property professor called them a bundle of sticks. You could have a lifetime interest in a bit of land but no ability to sell it. That’s not the whole bundle, but it’s not nothing. You could lease someone’s land for a year, but then have to leave it. (That’s more of a twig.) Both the lease and the lifetime interest constitute limited property rights. My question then is: does Article IX afford some form of property right, not all of them, necessarily, but some?

It’s always nice, when practicing law, to read what the words say, since they are the best expression of what someone meant. When you’re writing a law or regulation, you’re supposed to say what you mean and mean what you say, so we’ll figure that applies to treaties, too. Given the Supreme Court’s propensity for treating treaties like contracts, this is likely a sound approach. So, what does Article IX say? Continue reading

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Ordering the Cosmos: Private Law and Celestial Property Rights

This month the Institute for Humane Studies and the Mercatus Center co-sponsored a fascinating seminar on the Law and Economics of Space Policy in Arlington, Virginia. Dr. Alexander Salter, a professor of economics at Rawls College of Business and a Comparative Economics Research Fellow at the Free Market Institute, Texas Tech University, presented his paper, Ordering the Cosmos: Private Law and Celestial Property Rights, on how a private legal system could protect property rights despite Article II of the Outer Space Treaty. (I have my own issues with whether Article II actually prohibits private property in Outer Space, but Salter’s ideas give me hope that it might not matter). He proposes a purely private legal system for space commerce to make up for any lack of government enforcement of private property rights.

The discipline of continuous dealings can be self-enforcing. Salter envisions self-enforcing property rights and rules for private parties to adjudicate their own disputes. He acknowledges the problems posed by game theory’s Prisoner’s Dilemma, where two individuals face the choice between respecting each other’s property rights or taking the other’s property. Respect results in them getting to keep their own property. But if one of them defected from the norms of civilized conduct that person could get double the property. Without a sovereign to enforce their respective property claims, the property-maximizing approach (if I am not abusing the lingo here) would be to go barbarian. As Salter notes, however, the scenario is limited in that it assumes a one-time interaction between the two parties, which is not realistic. In real life, there should be multiple interactions over a lifetime. If one of them were to defect, the lost trust would hinder future dealings. As Salter explains:

Social scientists call this the discipline of continuous dealings: since the gains from defection are gained only once, but the gains from cooperating extend into the indefinite future, rational individuals will be much more likely to cooperate when they repeatedly interact.

Adding additional players strengthens the tendency for cooperation because of the reputational effects of behaving badly. Space commerce, Salter posits, will select for patient players who can foresee the consequences of failing to cooperate. Large up front investments and long lead times before seeing positive cash flow do not reward the impatient.

History shows that self-enforcement can work. The international stage itself constitutes an example of the kind of cooperation Salter envisions. There is no king of the world, and “the world’s polities exist in a ‘state of nature.’” Yet international trade and commerce still manage to happen in a “sophisticated private and voluntary legal system.”  The historical roots for this system extend all the way back to the 9th and 10th centuries, when Europe’s trade began recovering from the collapse of the Roman Empire in the West. Merchants developed law enforced in private, merchant-developed courts. This medieval lex mercatoria “was a system of self-enforcing property rights according to legal rules that emerged out of dispute resolution among interested parties.” The merchant courts, Salter explains, developed their own rules of evidence, allowed for consulting experts, and provided quicker decisions than the national courts of the time. Because the courts had no formal enforcement power, enforcement relied on reputational effects. Failure to comply with a decision would brand a merchant  a defector and an unsafe trading partner.  (Even without the internet).

Private courts have not vanished, even with the court systems of the modern nation state. Salter explains that nowadays at least 90 percent of international commerce contracts provide for private arbitration in the event of a dispute.

The desirability of private law. To determine the desirability of private law, Salter first explores the difference between organizations, such as corporations or regulatory agencies, and emergent or spontaneous order (called a cosmos). A market is an example of an order. A market has a tendency toward efficiency as millions of individuals somehow cooperate even though they don’t know each other or even all the conditions of the market.  Prices—continually adjusting in response to changing conditions of supply and demand—provide the substitute for individual omniscience.

We also see orders in the creation of law. Where a regulatory agency’s rules are created by an organization, judicial decisions in a common law legal system exhibit the characteristics of an order. Under a common law system, whether public or private, and under lex mercatoria, “rules that do a good job of providing both stability and flexibility are likely to be discovered and maintained, while rules that do a poor job are likely to be discarded.” Innovation may take place at the margin as new circumstances extend the application of legal principles to new situations.

Both the market and legal systems are orders that generate information and align incentives. In a private legal system the reputational effects tend to keep the arbitrators impartial and disputants willing to abide by private arbitration. The lower costs of a private legal system tend to get passed on to consumers. The feedback mechanisms keep the order flexible, and the order itself stable enough for planning and investment purposes.

Do read the whole paper to best appreciate the discussion of benefits.

Pun acknowledgment:  Now that we know the other meaning of cosmos, we can doubly appreciate the orderly aspects of the paper’s title.

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