Digital Signatures, Subordinations and Drones
By Erin Van Laanen and Brian Burget
On October 21, 1998, United States Public Law 105-277, the Government Paperwork Elimination Act, directed the Office of Management and Budget (“OMB”) to develop procedures for the use and acceptance of electronic signatures by executive agencies of the United States. The Act states: “… The procedures developed … shall be compatible with standards and technology for electronic signatures that are generally used in commerce and industry and by State governments.”
On June 30, 2000, the United States enacted the Electronic Signatures in Global and National Commerce Act (the “E-SIGN Act”). The E-SIGN Act promotes the use of electronic contract formation, signatures, and record-keeping in private commerce by establishing legal equivalence between:
- contracts written on paper and contracts in electronic form;
- pen-and-ink signatures and electronic signatures; and
- other legally-required written documents and the same information in electronic form.
On October 29, 2002, the Director of Flight Standards Service issued Advisory Circular No. 120-78 to provide guidance on the acceptance and use of electronic signatures to satisfy certain operational and maintenance requirements. The advisory circular states that an electronic signature may be in the following forms:
- A digital signature.
- A digitised image of a paper signature.
- A typed notation.
- An electronic code.
- Any other unique form of individual identification that can be used as a means of authenticating a record, record entry, or document.
On October 31, 2008, the U.S. Department of Transportation, Federal Aviation Administration (“FAA”), published FAA Order 1370.104, Digital Signature Policy (the “FAA Policy”), which established the FAA’s policy for the use of digital signatures. The order states: “… Electronic signatures describe digital markings used to bind a party or to authenticate a record. It is considered the digital equivalent of the traditional handwritten signature used to sign a contract or document.” The FAA Policy defines a digital signature as follows:
“Digital signatures are a type of electronic signature that is legally acceptable and offers both signer and transaction authentication. The digital signature is the most secure and full-featured type of electronic signature. Digital signatures are federally acceptable types of electronic signatures for business transactions as specified in the National Institutes of Standards and Technology (NIST) guidelines.”
14 CFR Part 47.13(a) states: “… Each person signing an Aircraft Registration Application, AC Form 8050-1, or a document submitted as supporting evidence under this part, must sign in ink or by other means acceptable to the FAA (emphasis added) …”
14 CFR Part 49.13(a) states: “… Each signature on a conveyance must be in ink.”
Black’s Law Dictionary, 7th Edition, defines a signature as: “A person’s name or mark written by that person or at the person’s direction and any name, mark or writing used with the intention of authenticating a document.” Black’s Law Dictionary, 7th Edition, defines a digital signature as: “A secure, digital code attached to an electronically transmitted message that uniquely identifies and authenticates the sender.”
Based on the foregoing, the Civil Aviation Registry, Aircraft Registration Branch (under the FAA) concluded that printed duplicates of electronic documents that display legible digital signatures satisfy the signature requirements of Parts 47 and 49 and, effective April 1, 2016 (over 15 years after the initial United States directive to employ the use of digital signatures), such documents are now accepted by the FAA. The documents include but are not limited to the following:
- Aircraft Registration Application, AC Form 8050-1.
- Aircraft Bill of Sale, AC Form 8050-2, or equivalent transfer documents.
- Security documents.
- Conditional sales contracts.
- Any supporting authorisation documents such as powers of attorney, trusts agreements, trust-related documents, limited liability company (“LLC”) statements, etc.
- Lease terminations.
With regard to documents filed with the FAA, the FAA stipulates that an acceptable digital signature must:
- show the name of the signer and is applied in a manner to execute or validate the document;
- include the typed or printed name of the signer below or adjacent to the signature when the signature uses a digitised or scanned version of the signer’s hand-scribed signature or the name is in a cursive font;
- show the signer’s corporate, managerial, or partnership title as a part of or adjacent to the digital signature when the signer is signing on behalf of an organisation or legal entity;
- show evidence of authentication of the signer’s identity such as the text “digitally signed by …” along with the software provider’s seal/watermark, date and time of execution; or have an authentication code or key identifying the software provider; and
- have a font, size and colour density that is clearly legible and reproducible when reviewed, copied and scanned into a black-on-white format.
[Jana L. Hammer, Fed. Aviation Admin. Aircraft Registration Branch, AFS-750 Change Bulletin 16-03; Acceptance of Documents with Legible Digital Signatures (March 28, 2016).] Further guidance from the FAA is not anticipated.
An important note is that a “digital signature” and an “electronic signature” are not necessarily the same thing. “Electronic signature” encompasses the broad category under which digital signatures fall. Electronic signatures, defined simply, are digital markings used to bind a party or to authenticate a record. An electronic signature is considered the digital equivalent of the traditional handwritten signature used to sign a contract or document. Electronic signatures can be either: (1) digital signatures, which are completed with specific software intended to create a secure, authenticated and federally acceptable signature; or (2) digitised signatures, which are merely electronic representations of an actual handwritten image of a signature. Therefore, it is important that any documents submitted to the FAA contain digital signatures that comply with the FAA’s policy.
The FAA does not have an approved list of digital signature software; nor does the FAA define the technological distinction between an electronic signature and a digital signature. The FAA does confirm, however, that a digital signature should include Public Key Infrastructure technology, utilising a Public Key, Private Key and Digital Certificates. While the technology of digital signatures is beyond the scope of this article, most third-party vendors, such as DocuSign, have the appropriate technology for digital signatures that meet the FAA Policy.
How do digital signatures work?
The process of obtaining a digital signature using a third-party vendor is very simple: (i) the document or signature page to be signed is created as a PDF by the holder of the digital signature software (the Drafter); (ii) the Drafter will need the name of the person who will sign the document (the Signer), the Signer’s managerial title and email address; (iii) the Drafter sends an email via the digital signature software to the Signer; (iv) the email will contain a link to the document(s) requiring digital signature; (v) the Signer opens the email, reviews the document contents and begins the signing process; (vi) the software leads the Signer through a few simple steps to adopt and sign the document(s); and (vii) after finishing, the Signer closes the link and the email, which will complete the digital execution process and automatically return the signed documents to the Drafter.
Some questions surrounding the FAA Policy on digital signatures
- Will the FAA now accept documents submitted to the FAA electronically, since the FAA will now accept copies of documents with digital signatures? No, the FAA does not have the ability to electronically accept documents, nor is this contemplated in the near future.
- Can signatures be obtained in advance and then attached to the execution text of a document once the parties have agreed on the final text? There is no authority directly addressing the question of whether a digital signature page may be obtained in advance and later attached to a final document, as opposed to obtaining the digital signature once the document is finalised. However, based on the E-SIGN Act and common practice with regard to handwritten signatures, an inference may be drawn to suggest that such practice with regard to digital signatures would likewise be acceptable. Digital signatures have the same legal effect as handwritten signatures. The E-SIGN Act explicitly states that “a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form” [15 U.S.C. § 7001(a)(1)]. While this language does not affirmatively state that a digital signature is considered to have the same legal effect as a handwritten signature, several states have interpreted the statute to convey that meaning.
- Can notaries provide their notarisation via digital signature? There is no authority to suggest that notarisation methods or standards will be different depending on whether a signature is digital or handwritten. The National Notary Association has issued publications stating that digital signatures should be notarised under the same standards as handwritten signatures. The most recent publication of the Model Notary Act takes the position that: “the fundamental principles and processes of traditional notarisation must apply regardless of the technology used to create a signature. No principle is more critical to notarisation than that the signer must appear in person before a duly commissioned notary public to affix or acknowledge the signature and be screened for identity, volition, and basic awareness by the notary at the time of the notarial act.” [Model Notary Act, Article III, The Electronic Notary (2010).] Hence, the notary should be present when the Signer digitally signs the relevant document.
- What about the pink copy of the FAA 8050-1 Aircraft Registration Application form? In order to accommodate applicants for aircraft registration, the FAA has made available a downloadable Aircraft Registration Application, AC Form 8050-1, that applicants may sign using a legible digital signature. Applicants may also sign the downloadable application in ink. A printed duplicate of the digitally signed application may be submitted in support of aircraft registration. However, if the application is signed in ink, the ink-signed application must be submitted. A second duplicate copy, whether digitally signed or ink-signed, now serves as the old “pink copy” of the application and must be placed in the aircraft as temporary authority to operate the aircraft within the United States pending registration.
- Can counterpart signatures be digital signatures, or a mix of ink and digital signatures? Yes, the FAA will accept counterpart digital signatures and a mix of ink and digital signatures on the same document.
- Are any documents typically filed with the FAA excluded from the digital signature? It is contemplated that all documents or forms that would be acceptable under the signed-in-ink standard will be acceptable as printed duplicates of electronic documents that display legible digital signatures. Conversely, an application, bill of sale, security agreement, lease, release or similar document sent by facsimile (fax) is not considered the same as an original ink-signed document, and similarly would not be considered a printed duplicate of an electronic document.
- Documents filed with the FAA often contain hand-written edits, changes or additions. Will documents with hand-written notations be accepted? In early discussions of digital signatures, the FAA suggested that the benefit of electronic documents is the ability to easily edit and sign documents during an online meeting, such as a closing. The FAA initially offered that, short of executing an amendment, a best practice for hand-scribed corrections, edits and additions is that they be accompanied by the dated initials of the signing parties. However, upon consideration, the FAA determined that hand-scribed notations should be adjudicated for acceptability under local laws and it is the responsibility of the parties and their agents, not the FAA, to file documents for the public record that are true and complete. Hence, the FAA’s long-standing policy of accepting documents at face value is still in force and will not change by the acceptance of digital signatures. The meaning or effect of these edits is left to the FAA examiner to determine whether the document meets the FAA’s recording criteria.
Subordinating CTC Registrations
In order to understand the importance of “subordinations”, it is necessary to understand the priority scheme established by the Convention on International Interests in Mobile Equipment (the “Convention”), as supplemented by the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (the “Protocol”) (collectively, the “CTC”). The priority rules are set out in Article 29 of the Convention. Generally speaking, priorities under the CTC are determined by a “first to register” principle such that a registered interest will take priority over (i) any other interest subsequently registered, or (ii) an unregistered interest. For example, Party “X” grants a security interest in its airframe to Party “Y” and Party “Z”. Party “Y” thereafter goes out and registers its interest in the object on the International Registry prior to Party “Z” registering its interest. The interest of Party “Y” in the airframe is prior to that of Party “Z”. This is true even if the interest granted to Party “Z” was created prior to the interest granted to Party “Y”, and even if Party “Y” had actual notice of the prior interest granted to Party “Z”.
The concept of subordinating priority interests often arises between two or more competing lenders, or when an owner of an airframe has executed a lease with a lessee, registered the lease interest with the International Registry, and then subsequently grants a security interest to a lender. In those instances, parties may elect to discharge the existing interest(s) and then re-register the interests in the priority desired by the parties. However, that practice is suspect because (i) it is not contemplated by the CTC, (ii) discharging existing interests will lose their priority position against third parties, and (iii) discharging and registering new interests is required to be in writing (per the CTC) and in most instances, there is no agreement among the parties to create a new international interest vis-à-vis the interest which was prematurely discharged for the sole purpose of re-ordering priority. The better practice is provided by Article 29 of the CTC, which establishes an exception to the basic priority rule and allows parties to vary their priority by mutual agreement. So, under Article 29, the parties may leave the current registrations in place, negotiate the order in which the new parties require their priorities to be, enter into a written agreement reflecting the new priorities, and then register agreed-upon subordinations with the International Registry.
Under Article 29 of the CTC, the holder of a registered interest may agree to subordinate its priority interest to a holder of a subsequently registered interest. When an agreement to subordinate an interest has been executed, parties should register the corresponding subordination with the International Registry to evidence the parties’ agreement. The registration of the subordination not only alters the priority of the competing interest-holders, but further binds an assignee of the subordinated creditor (note: an assignee of a subordinated interest is not bound by an agreement to subordinate unless a subordination has been registered with the International Registry at the time the assignee takes the assigned interest).
With regard to lease registrations, the lease interest is registered with the International Registry prior in time to that of the security interest and the lessee would, absent an agreement to subordinate, have priority over the lender (in the form of a right to quiet possession and use). It therefore falls on the lender to negotiate a subordination agreement with the lessee in order to support the registration of a subordination of the lessee’s interest with the International Registry. More often that not, the parties will have given little thought to the priority of an existing registered lease until late in negotiating a deal, when it may be difficult to obtain the necessary agreement to support the registration of a subordination, either by the lessor or the lessee under the prior registration. So it is important to pinpoint these issues early in transaction discussions.
Unmanned Aircraft Systems (aka Drones)
The United States Transportation Code (the “Code”) defines an “aircraft” as “any contrivance invented, used, or designed to navigate, or fly in, the air”. Commonly known as “drones”, the FAA has adopted the term “unmanned aircraft” or “unmanned aircraft system” (“UAS”) to describe aircraft that are “operated without the possibility of direct human intervention from within or on the aircraft”. This includes what have traditionally been known as “model aircraft” which are capable of flying in the air.
In general, a person may not operate an aircraft (including UAS) in U.S. airspace if the aircraft is not registered. As with manned aircraft, to be eligible for U.S. registration, the owner of the UAS must qualify as a citizen of the United States under the Code, which carries all of the citizenship requirements of the Code which have always been applicable to manned aircraft. There are currently two methods available to register a UAS with the FAA: (1) the traditional “paper” registration process used for manned aircraft under Part 47 of the Federal Aviation Regulations (“FARs”); and (2) the newer online registration system created pursuant to FAR Part 48.
Online registration under FAR Part 48
When the FAA’s online registration system was initially launched, it was available only for small UAS (i.e., UAS with a maximum takeoff weight of under 55 pounds) used solely for recreational purposes. The online system is now available for most small UAS, regardless of their use. However, online registration is not available:
- for “large UAS” (i.e., UAS with a maximum takeoff weight of 55 pounds or more);
- for UAS owned by a trustee under a trust agreement;
- for UAS whose owner uses a voting trust to meet U.S. citizenship requirements;
- for UAS that needs N-number registration to operate outside the United States; and
- when public recording is desired for a UAS’s loan, lease, or ownership documents.
If one of the above applies, then the owner must register the UAS using the traditional “paper” registration and recordation system under Part 47, which is discussed in further detail below.
To register a UAS online, the owner will need:
- an email address;
- a credit or debit card; and
- a physical address and mailing address (if different from the owner’s physical address).
The registration fee is $5.00 and registration is valid for three years. The Certificate of Aircraft Registration must be on hand when operating the UAS and can be available either in paper form or electronically. The online UAS registration system may be accessed at https://registermyuas.faa.gov/.
When registering a UAS online, the owner must indicate whether the UAS will be used for recreational purposes only or for commercial purposes. Registrants of UAS used for hobby or recreational purposes must be at least 13 years old, while registrants of UAS used for commercial purposes must be at least 16 years old. Registrants who use their UAS only for hobby or recreational purposes will be assigned one unique registration number to be used for as many UAS as the registrant desires. Registrants who use their UAS for commercial purposes must register each individual UAS. Registration numbers obtained through online registration begin with “FA”.
Registration under FAR Part 47
If a UAS is not eligible for online registration, then the applicant must use the traditional “paper” registration process (which now includes digitally signed documents). The process to register a UAS under FAR Part 47 is similar to the process of registering a manned aircraft with the FAA. An applicant for registration must file certain documents with the FAA Civil Aircraft Registry in Oklahoma City, Oklahoma, and will receive a hard-copy Certificate of Aircraft Registration. As with manned aircraft, UAS registered under FAR Part 47 are assigned N-numbers.
To register a UAS with the FAA under FAR Part 47, the owner must provide the following to the FAA:
- evidence of ownership (e.g., bill of sale) tracing the chain of title from the manufacturer or last registered owner to the applicant, including any intervening owners;
- a notarised affidavit, as further described below;
- an Aircraft Registration Application, AC Form 8050-1;
- any necessary documentation to support the U.S. citizenship of the applicant (e.g., trust agreement, Statement in Support of Registration of a United States Civil Aircraft in the Name of a Limited Liability Company); and
- the $5.00 filing/registration fee.
The FAA has provided a form of affidavit that applicants for registration of a UAS may use, but applicants are not required to use this form. The FAA’s form of affidavit may be accessed at https://www.faa.gov/licenses_certificates/aircraft_certification/aircraft_registry/media/sUA_Affidavit.pdf. The affidavit filed with the FAA must include the following:
- a detailed description of the UAS, including the full legal name of the manufacturer or builder, model designation, serial number, class (e.g., airplane, rotorcraft), maximum takeoff weight (including all items on board or attached), number of engines, and engine type;
- a statement regarding the applicant’s ownership of the UAS (e.g., referring to an attached bill of sale or explaining other evidence of the transaction);
- a statement establishing that the UAS is not registered in another country; and
- the following statement above the signature: “I affirm the information and statements provided herein are correct, the aircraft is not registered under the laws of any foreign country, and I am the owner.”
If a bill of sale or an equivalent transfer of ownership document is not available, the affidavit should attach any other evidence of the transaction (e.g., sales receipt, invoice) and state the following: (1) how, from whom, and where the UAS was obtained, and (2) why a bill of sale or other equal transfer of ownership document is unavailable for filing.
If the UAS was purchased new and has not been registered anywhere, the affidavit must contain a statement such as: “I purchased this UAS as a new off-the-shelf item from [the manufacturer, a retail store, etc.] named [_], located in [City, State, Country] on [date].” Alternatively, if the UAS was registered or operated in another country or was purchased from a seller located in another country, the affidavit must be accompanied by a statement from the Civil Aviation Authority of the exporting country confirming that registration in that country has ended or that the UAS was never registered.
As noted above, if public recording is desired for a UAS’s loan, lease, or ownership documents, the UAS must be registered with the FAA under FAR Part 47. Accordingly, a lender may perfect its security interest in a UAS by filing the instrument granting such interest with the FAA.
- Public Key Infrastructure is a security management system including hardware, software, people, processes and policies (including certificate authorities and registration authorities) dedicated to the management of Digital Certificates for the purpose of achieving secure exchange of electronic information (adapted from the Federal Information Processing Standards (“FIPS”) 186-3).
- A Public Key is a cryptographic key that is used with an asymmetric (Public Key) cryptographic algorithm and is associated with a Private Key. The Public Key is associated with an owner and may be made public. In the case of digital signatures, the Public Key is used to verify a digital signature that was signed using the corresponding Private Key (adapted from FIPS 186-3).
- A Private Key is a cryptographic key used with a Public Key. The Private Key is uniquely linked with the owner and not made public. The Private Key is used to calculate a digital signature that is verified when using the corresponding Public Key (adapted from FIPS 186-3).
- A Digital Certificate is a set of data that uniquely identifies a Public and Private Key and an owner who is authorised to use the certificate. The certificate contains the owner’s Public Key (and other information) and is digitally signed by the Certification Authority or Trusted Party; in doing so, it binds the Public Key to the owner. The most common use of a Digital Certificate is to verify that a user sending a message is who he or she claims to be, and to provide the receiver with the means to encode a reply (adapted from FIPS 186-3).
- Note: The scope of this section is limited to registration of UAS with the FAA and perfection of certain interests in UAS. This article does not address issues related to the operation of UAS.
- The term “unmanned aircraft system” (“UAS”) has been adopted by the FAA and the international community in recognition of the fact that a UAS includes not only the airframe, but also associated elements necessary for the safe and efficient operation of the aircraft, such as the control station and communication links. Id.
- Note: UAS with a maximum takeoff weight of less than 0.55 pounds and UAS operated solely indoors are not currently subject to the FAA’s registration requirements.
- UAS owners who are foreign nationals and are not eligible to register UAS with the FAA have two options. If the UAS is to be operated exclusively as a model aircraft (i.e., for recreational or hobby use), the owner may complete the online registration process and obtain a “recognition of ownership”. This recognition of ownership is required by the U.S. Department of Transportation for a non-citizen owner to operate a model aircraft in the United States. If the UAS is to be operated for non-recreational purposes, the owner must register the UAS in the country in which the owner is eligible to register, and must obtain operating authority from the U.S. Department of Transportation.
The authors would like to thank Allison McGrew for her assistance in preparing this article.