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Space Cowboys

By Kari Santos | Oct. 2, 2014

Law Office Management

Oct. 2, 2014

Space Cowboys

To break its reliance on foreign rocketry for shuttling cargo and astronauts to the International Space Station, NASA has opened its doors to private enterprise. Now commercial launch companies are vying for NASA contracts, and planning mining operations on asteroids and the moon.

Elon Musk's other car is a spaceship.

In 2002 Musk, co-founder of PayPal and Tesla Motors, created Space Exploration Technologies to build spacecraft for commercial space travel. Six years later, SpaceX successfully launched its first rocket, and in 2012 its Falcon 9 carried an early Dragon spacecraft to the International Space Station (ISS). The Hawthorne-based company followed with four more successful launches, leading to a $1.6 billion contract with the National Aeronautics and Space Administration (NASA) for twelve cargo deliveries to the space station through 2016.

SpaceX also wants to compete to participate in the Defense Department's multibillion-dollar military satellite program. But that has put it at odds with two of the U.S. Air Force's legacy contractors, the Boeing Company and Lockheed Martin, which have a joint venture in rocket building, United Launch Alliance (ULA).

In a 34-page bid protest filed in April, SpaceX alleged that the Air Force rushed into contractual commitments with ULA for two-thirds of the projected launches, leaving just seven open to competitive bidding. SpaceX claimed the pact with ULA to provide rocket launch vehicles was an illegal and anti-competitive "sole source" contract. For good measure, the protest also noted that the bid relied on Russian-built engines, in violation of President Obama's executive order imposing sanctions on the Russian Federation for its actions in the Crimea. (Space Exploration Techs. Corp. v. United States, No. 14-CV-00354 (Ct. of Fed. Claims filed Apr. 28, 2014).) "In light of international events, this seems like the wrong time to send hundreds of millions of dollars to the Kremlin," said Musk. "Yet, this is what the Air Force's arrangement with ULA does."

Two days later, U.S. Court of Claims Judge Susan G. Braden issued a preliminary injunction prohibiting the federal government from consummating the ULA deal. (Space Exploration Techs. Corp. v. United States, 116 Fed. Cl. 68 (2014).)

SpaceX's communications director declined comment, citing the judge's order. But Doug Griffith, a Pasadena-based aviation and spaceflight lawyer with no connection to the case, says the Air Force is "bending over backwards" to ensure that ULA remains the sole provider of launch services for DOD satellites. "I think SpaceX is having fun with this case," he says, "while ULA is looking at it as a matter of survival."

Griffith-who also serves as general counsel to Colorado-based Golden Spike Company, a space transportation enterprise-contends that ULA is afraid of competition. "If SpaceX can demonstrate its reliability to the Defense Department, ULA's launch costs are so far above those of SpaceX, they have reason to worry," he says.

Welcome to the brave new world of competitive space exploration. NASA's budget has been in a decades-long swoon since the end of the Apollo program in 1972. The Space Shuttle Program, conceived as a transport system to a U.S. space station, was launched that same year. But the space station suffered from design changes and cost over-runs. It evolved into the International Space Station, established in January 1998 as a joint project of the U.S., Russian, Japanese, Canadian, and European space agencies. By the time the first modules were in place, the service life of the Space Shuttles was nearing an end. NASA was left in the awkward position of having its astronauts thumb a ride to the space station aboard Russian Soyez rockets at a cost of approximately $70 million a seat.

President Obama responded by announcing a 2010 National Space Policy, stating that continued U.S. access to space depended on launching payloads aboard U.S.-manufactured vehicles. It sought "partnerships with the private sector to enable safe, reliable, and cost-effective commercial spaceflight capabilities and services for the transport of crew and cargo to and from the ISS."

The term "commercial" is used broadly in this policy, referring to "space goods, services, or activities provided by private sector enterprises that bear a reasonable portion of the investment risk"-even though the companies depend on the government for most of their revenue.

Since 2012, private U.S. firms have been ferrying cargo capsules to the space station, and planning to deliver NASA astronauts as well. They are also preparing to offer suborbital commercial space rides, and to mine the moon and other celestial bodies. (See "Yours, Mine, and Ours," page 24.)

Commercial activity aboard the space station is administered under a 15-nation treaty called the Intergovernmental Agreement (IGA), which "provides a long-term co-operative framework on the basis of genuine partnership ... in accordance with international law." (Article 1.)

But according to space law expert Frans von der Dunk of the University of Nebraska-Lincoln, "Even with considerable subsidies, it remained crazily expensive for a commercial entity to do something useful on board."

Jurisdiction over any invention created aboard the ISS is determined by ownership and registry of the module where it originated. "The Outer Space Treaty (notably Article VIII) and Registration Convention provide that if a state registers a space object, it may exercise its jurisdiction on board on a quasi-territorial basis," explains von der Dunk, who has served as adviser to the European Space Agency, the Dutch National Aerospace Agency, the German and Brazilian space agencies, and the Centre for Strategic and International Studies in Washington, D.C. "For example, the United States is entitled to apply its patent laws on board the U.S. module. A U.S. engineer or company doing [patentable work] on board of the Japanese module would have to register through Japanese patent law." (Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, Including the Moon and Other Celestial Bodies, 610 U.N.T.S. 205 (1967).)

But guidelines published by the European Space Agency note that national jurisdiction "does not impact the ownership of the invention, nor does it preclude the right to file for a patent in multiple countries. An inventor may file for a patent in any country he chooses."

Nonetheless, determining private property rights in space quickly became a priority for investors. On Earth, concepts like IP protection have been developed over many decades, but the popular perception is that once you leave the planet's surface, the rules-like gravity-don't necessarily apply.

Until recently, space law was the province of in-house counsel, government lawyers, and academics at a handful of universities, including the University of Nebraska-Lincoln and the University of Mississippi. "Even ten years ago, space law still had a certain 'giggle factor' to it," admits Griffith, a former Marine helicopter pilot with a lifelong interest in aviation and "all things space."

But as companies like SpaceX and its private-launch competitors-including Virgin Galactic, Bigelow Aerospace, Orbital Sciences, and Sierra Nevada Corp. near San Diego-pursue NASA contracts and commercial development, case law and mainstream practice won't be far behind. Just last August, the University of Nebraska program announced it would offer a Doctorate of Juridical Sciences-the first doctoral-level space law program in the United States.

One of the brightest objects in the night sky, the International Space Station shows as a white pinpoint of light racing across the heavens some 240 miles overhead. At close range, though, the ISS is a fascinating mélange of modules, solar panels, and delicate-looking appendages. Russia launched the first module in late 1998 and sent the first crew two years later. The station now incorporates 15 modules from various nations, more than 820 cubic meters of pressurized space, and a crew of six. It has cost more than $150 billion, and NASA spends a huge piece of its budget-roughly $3 billion a year-to maintain it in cooperation with other countries.

Despite the expense, more than 200 commercial experiments have been conducted aboard the U.S. module, coordinated through a NASA contract with the Center for the Advancement of Science in Space (CASIS) in Melbourne, Florida. For example, Astrogenetix Corporation of Austin, Texas, is continuing earlier work on drug development. Last year Guigne Space Systems of Newfoundland, Canada, developed hardware for creating a new class of porous ceramic material to use in dental and bone replacement. Bigelow Aerospace is expected to begin testing inflatable space modules next year. And a group of middle- and high-school students is remotely using small robotic satellites on the ISS to study the movement of liquids inside containers in microgravity-such as rocket fuel in tanks.

One of the first private companies to partner with NASA was Houston-based NanoRacks, founded in 2008. Under provisions of the National Aeronautics and Space Act of 1958, NASA is authorized "to enter into and perform such contracts, leases, cooperative agreements, or other transactions as may be necessary in the conduct of its work" with domestic and foreign entities. (51 U.S.C. § 20113(e).)

"Our agreement gives us the right to work on the ISS, to manifest payloads, and provides our customers with strong intellectual property protection," says NanoRacks's managing director, Jeffrey Manber. The company has been involved in space projects with entities ranging from NASA to educational institutions and private businesses. It has also begun launching customers' small-scale "cube satellites" into orbit-starting with one for the University of Hanoi in Vietnam.

"Our company actually operates as part of the NASA membership in the ISS," Manber says. "If [a private] payload goes to the ISS, it's not the company's payload or a NanoRacks payload-it's a NASA payload."

Space Act Agreements address some of the issues that can arise out of conflicting legal regimes. For example, Manber says, "Suppose a U.S. firm comes to us, and we send up a U.S. payload on board a Japanese launch vehicle. Who is the host nation? Or if it's a communications satellite, under FAA regulations you're supposed to register the satellite from the launch vehicle. The satellite could be transported on NASA's uncrewed Cygnus, or on a Japanese launch vehicle, but it's actually being deployed from the ISS. So how do you file a license?"

Under terms of a "payload flight opportunity contract" that the company enters with its customers, NanoRacks provides services like payload integration, launch, the scheduling of astronaut time (if needed) and more. But Manber says there's also a clause that reminds clients that "this is space, and things can change, or go wrong. The launch date can change, NASA is in charge of safety regulations, and it can even reject the payload. NASA is the final arbiter."

Because of the international nature of the space station, NASA must get permission from all 15 ISS members if one of NanoRacks's potential customers is from a non-ISS nation. "We've flown payloads from Peru, from Israel, from other nonmember nations, and haven't had one rejected yet," says Manber.

The weak link in the system, by most accounts, seems to be intellectual property protection. "Under the standard Space Act and CASIS agreements, intellectual property protection is extremely weak," says Manber. "We explained [to NASA]why we felt we needed an exemption from the language, and were successful in getting [one]."

Because of the technology and the international partnerships involved, space is a unique legal and commercial environment, contends P. J. Blount, who teaches law at the University of Mississippi and is former research counsel at its National Center for Remote Sensing, Air, and Space Law.

"Space is, as a whole, much bigger than the ISS," Blount says. "For telecom companies, for launch companies, [IP rights] isn't an issue."

But under the Space Act, the U.S. government has an exclusive right to any invention made in connection with work performed under a NASA contract, unless NASA waives that right (51 U.S.C. § 20135, formerly 42 U.S.C. § 2457). "My sense is that responsible businesspeople will want to see these issues handled during negotiations with NASA," he says."If you don't, of course, then you have to rely on the good graces of NASA if the question comes up later on."

NASA typically is generous in waiving its statutory IP rights, says Michael Dodge, Blount's colleague at the University of Mississippi and the first student in the nation to graduate with a space law certificate. "But the very fact that it can claim these rights is cause for concern. ... Even in cases where the NASA administrator waives the government's rights to an invention," he explains, "the government can maintain the right to use it free of royalties. Obviously, this could have financial ramifications for business interests."

A dispute 40 years ago between NASA and a private developer led to "significant case law" defining IP rights in space, Dodge says. "An engineer working for the University of Wisconsin wanted to develop a 'spin scan camera' for use on satellites," he explains. "The engineer wanted to keep the IP rights, essentially claiming that his invention had been 'reduced to practice' outside the context of a NASA contract. However, the U.S. Court of Customs and Patent Appeals disagreed, finding that if an invention was developed as a result of a contract with NASA ... it is owned by NASA. (Hummer v. Administrator of Nat'l Aeronautics & Space Admin., 500 F.2d 1383 (C.C.P.A. 1974).)

Since then, NASA's Joint Endeavor Agreement and various laws passed by Congress have limited the agency's ability to assert exclusive control of patents. For instance, Public Law 96-517 (35 U.S.C. §§ 200212) gives inventors the right to retain patents resulting from federally funded work. In 1983 President Reagan directed all federal agencies, including NASA, to conform their R&D polices to the new law.

"If I were to advise a business contemplating an association with NASA, I would feel obliged to warn them that, depending on the circumstances of the partnership, they may get second dibs on their IP," Dodge says. "The fact that a business has to ask for a waiver to keep protection and rights over its own inventions is distressing, to say the least."

The extraterritorial reach of U.S. patent law, however, has yet to be clarified. In a marathon dispute with Hughes Aircraft Company, NASA argued that U.S. patent law is restricted to U.S. territory. Hughes had sued NASA for using a patented stabilizing system that allows satellites to remain in one spot above the Earth. The U.S. Court of Appeals eventually held that NASA had infringed. (Hughes Aircraft Co. v. United States, 717 F.2d 1351 (Fed. Cir. 1983).)

Congress resolved some jurisdictional issues with passage of the Inventions in Outer Space Act of 1990. The opening section states, "Any invention made, used, or sold in outer space on a space object or component thereof under the jurisdiction or control of the United States shall be considered made, used, or sold within the United States." (35 U.S.C. § 105(a) (emphasis added).) But numerous exceptions are offered, and questions still arise.

For example, NASA patent attorneys Kurt G. Hammerle and Theodore U. Ro noted in a law review article that the act exempts "any space object or component thereof that is specifically identified and otherwise provided for by an international agreement to which the United States is a party (35 U.S.C. Â 105(b))." The authors also pointed out that there is no adequate history for terms like "components" of a space object. (34 J. SPACE L. (Vol. 34, 2008, 24175 (2008)).)

For all of section 105's flaws, the U.S. Court of Claims acknowledged in another facet of the Hughes Aircraft case that Congress had intended the statute to clarify patent law applications aboard U.S. spacecraft "to encourage private investment in research and manufacture conducted in outer space." Moreover, the court held, "the legislative history suggests the Act was consistent with international law." (Hughes Aircraft Co. v. United States, 29 Fed. Cl. 197, 230 n. 41 (1993).)

Last year the Senate's Commerce, Science, and Transportation committee approved a three-year NASA authorization bill (S. 1317) that would permit the agency's administrator to waive its IP rights if withholding such licenses would "substantially inhibit the commercialization of an invention." The bill has not yet reached the Senate floor.

Interestingly, a NASA authorization bill (H.R. 4412) passed by the House in June contains no waivers for IP rights or for licensing. Instead, Dodge says, section 212 of the measure directs the independent, nonprofit National Academies to determine what barriers exist to enhancing commercial companies' utilization of the ISS, and then recommend any legislative remedies.

The House bill has been referred to the Senate committee; NASA's chief counsel for intellectual property, Ed Fein, based at the Johnson Space Center in Houston, declined to comment for this article.

Another hazard for would-be investors in space station experiments, according to Dodge, is the International Traffic in Arms Regulations (ITAR) that implement the Arms Export Control Act. The 1976 regulations dictate in part that information and material planning pertaining to defense and military-related technologies included on the so-called U.S. Munitions List may be shared only with U.S. persons, unless authorized by the State Department or by special exemption. (See 22 C.F.R. §§ 120.1130.17.)

"Well-known villains like ITAR," Dodge says, "hinder business activity-especially [commercial and defense] businesses that have any multinational operations."

ITAR has had an eventful history. Under President George H. W. Bush, some telecommunications satellites were removed from the munitions list and put under the aegis of the Commerce Department. During the Clinton administration, export-control jurisdiction for all communications satellites was shifted from the State Department to Commerce.

Then in 1995 and 1996, two Long March rockets launched from China veered off course and exploded, destroying their cargo of communications satellites built by Hughes Electronics Corp. and Loral Space and Communications. For insurance purposes, the companies subsequently were required to produce launch-failure analyses. When the satellite makers shared that information with the Chinese government, Congress alleged they had violated provisions of ITAR. In 2002 Loral agreed to pay $14 million in fines and spend $6 million to comply with export-control laws; a year later, Hughes and its new owner, Boeing, paid $32 million to settle allegations of illegally providing China with sensitive space technology that could have assisted its military.

"Certain items needed for space operations are closely controlled by the government, which has a legitimate interest in keeping technology that could be weaponized out of the hands of those who could harm the U.S.," Dodge says. "Unfortunately, these restrictions make it exceptionally difficult to export materials that businesses may need."

In the run-up to the 2008 presidential election, Obama's campaign acknowledged that "some sections of [ITAR] have unduly hampered the competitiveness of the domestic aerospace industry." It promised that an Obama administration would "direct a review of the ITAR to reevaluate restrictions imposed on American companies, with a special focus on space hardware that is currently restricted from commercial export."

Five years later, in October, Obama signed a Presidential Determination delegating authority over some export controls to cabinet members, and requiring steps toward shifting certain satellites and related items from the munitions list to the Commerce Control List.

For NASA, these baby steps on ITAR controls arrive at a time of budget crisis and policy drift. Two years after President Kennedy first proposed a manned mission to the moon, NASA's 1963 funding was $25.2 billion, or 2.3 percent of the federal budget. By 1990, its budget had been halved to $12.4 billion (1 percent of the federal budget), and for 2015 NASA is seeking a mere $17.3 billion-less than half a percent of the pie.

Congress has yet to resolve differences in the FY 2015 NASA appropriation bills (H.R.4660, S.2437). Late casualties in budget negotiations include a scaling-back of SOFIA, a joint U.S.-German project to study infrared light above the atmosphere. But the main battleground is funding for the Commercial Crew Initiative, proposed by Obama in 2010 to reduce dependence on Russian rocketry. Congress then authorized NASA to develop its own crew transportation system, and also gave partial funding to the commercial initiative. The current H.R. 4660 reduces by almost 10 percent the requested funding for the program, despite pending NASA contracts for launches to begin by 2017.

Invariably, budget cuts have been accompanied by criticism of NASA's performance. Since the Challenger space shuttle tragedy and other safety malfunctions in the 1980s, the agency has had its share of over-budget and delayed projects-such as the James Webb Space Telescope, successor to the Hubble. Since planning began in 1989, the cost of the Webb (last projected to launch in 2018) has multiplied to an estimated $8.8 billion.

However appropriate the cutbacks at NASA may be, they have left the agency adrift. "What is NASA supposed to be doing?" asks Blount at the University of Mississippi. "Are we going to the moon? Are we doing planetary science? Are we doing human space exploration?"

To be fair, not all of NASA's difficulties are self-induced. To pursue such ambitious projects as returning astronauts to the moon or launching a manned mission to Mars, the agency requires three things: money, political stability in Congress, and long-term administrative support. Currently, NASA might argue, it receives none of these.

"Today, the United States is the major partner in a massive orbital facility-the International Space Station-that is becoming the focal point of the first tentative steps in commercial cargo and crewed orbital space flights," states a recent report by the National Research Council. "And yet, the long-term future of human spaceflight beyond this project is unclear," the authors wrote. (Pathways to Exploration: Rationales and Approaches for a U.S. Program of Human Space Exploration, The National Academies Press, Washington, D.C. (2014).)

By law, says John Logsdon, a space policy expert and professor emeritus at George Washington University, a percentage of the U.S. module of the International Space Station is to be used as a national laboratory to promote research by private and other U.S. government entities. However, Logsdon believes the space station has become too big and too expensive to operate. "If the government partners were starting now, they wouldn't build ISS" as large, he says. "But if the commercial aspect panned out, then you'd have people like [aerospace magnate] Bob Bigelow standing by to build orbital facilities on a smaller, more affordable scale."

As of July 2013, nearly 30 percent of the "rack space" on the U.S. module was still unused. Most likely, Logsdon speculates, "they are waiting for the 'early adopters' to get positive, commercially relevant results from ISS experimenters before committing their resources."

Still, Logsdon remains guardedly optimistic, noting that the ISS was finished only about three years ago. "Most research projects don't pay off in three years anyway."

The space station itself should be viable until around 2030, but congressional funding is guaranteed only through 2020. "The U.S. has proposed continuing through 2024," Logsdon says. "But I think an agreement with the other [nation] partners will be hard to come by. They have limited space funds, and they're not as convinced as NASA that this is a smart investment."

So the waiting continues. NASA supporters point to the benefits of the space station as a platform for developing and studying the technologies needed for long-term spaceflight, and as a spur to companies-including SpaceX, Virgin Galactic, and Golden Spike-that intend to provide human space transportation as far as the moon.

But no appropriation bill that Congress might pass will cover both maintenance of the space station and a government-owned exploration program to the moon, asteroids, or Mars.

Back in Los Angeles, attorney Griffith likes SpaceX's chances in its competitive-bidding battle with the Air Force, citing the federal claims court's injunction enjoining United Launch Alliance against purchasing more engines from Russia. (However, after the Treasury, Commerce, and State departments issued separate findings that the purchases will not violate the president's sanctions order, the injunction was dissolved; see Space Exploration Techs. Corp. v. United States, 2014 WL 1860048 (Ct. Cl.).)

"SpaceX's bread and butter is its ISS contract with NASA," Griffith says. "They have a long backlog and a good revenue stream, so if they lose this battle [to transport military satellites instead of ULA] I don't think they have as much at stake."

Griffith believes SpaceX has a case. "There was so much subjectivity in the Air Force regulations ... it allowed them to go with the 'legacy provider,' " he argues. "Along with proven reliability of ULA's technology, there is also a certain comfort level. But my sense is that the Air Force knew all along they were obligated to put these contracts out to bid."

We may never know. In July, Judge Braden urged the Air Force and SpaceX into mediation (the parties have until the middle of October to decide). "I think a mediated solution will come, and a certain number of launches will be taken away [from ULA]," Griffith says.

NASA indicated its increasing comfort with ULA's competitors in September, when the agency announced Commercial Crew Initiative contracts worth $4.2 billion to Boeing and $2.6 billion to SpaceX. CEO Elon Musk called the award to SpaceX "a vital step in a journey that will ultimately take us to the stars and make humanity a multiplanet species."

Meanwhile, Musk faces the competitive pressures of any entrepreneur. Last month Blue Origin-a secretive launch company run by founder Jeff Bezos-announced plans to team up with ULA to develop a replacement for Russian engines in the Atlas 5 rockets used to launch U.S. military and spy satellites. This would pit the Blue Origin/ULA partnership against SpaceX, which is promoting its own Falcon 9 rockets.

Lance Frazer is a freelance writer based in the Sacramento metropolitan area.


Kari Santos

Daily Journal Staff Writer

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