Regulatory Sandboxes Spur Innovation in the Space Sector

“Regulatory sandboxes” is a concept mainly associated with the Fintech sector. It was originally developed to represent the creation of safe spaces for testing new products and services, under regulatory supervision, and excluded from the applicable legal and regulatory requirements. However, this concept soon evolved and, in many countries, such as within the European Union, Fintech regulatory sandboxes developed as structured models for tests and experimentation in which the regulator keeps track of and guides the tests, all in accordance with the applicable legal and regulatory framework. Regulatory sandboxes have also been gradually applied in other sectors, such as the energy sector (this is the case in the United Kingdom, Germany, Australia, and Singapore), and even in privacy and personal data (for instance, the data protection sandbox launched by the Information Commissioner's Office in the U.K.).

Alongside regulatory sandboxes, other schemes for promoting innovation and tests have been implemented in several countries, such as innovation hubs and accelerators. Approaches under which the laws and regulations themselves contain special regimes for testing new products, services and technologies, exist as well. This is the case for experimental, exemption, or the non-application, by the regulator, of legal rules with a view to facilitating tests. Special regimes for testing have been developed, for example, in the mobility sector, such as for autonomous cars, and telecoms, such as for testing 5G.

In all cases, the legal or regulatory frameworks for experimentation aim to promote testing innovation with a view to facilitating the development and market entry of innovative products and services. They are a good example of how regulation can help innovation instead of hindering it. What is more, these legal or regulatory frameworks also contribute to testing current and future legal frameworks and assessing their suitability to technological evolution. They are an important instrument for “smart regulation” — regulation that is flexible, adjustable to new technologies and processes, dialogue-based (between public and private sector), and focused on a risk and outcome-based approach.

The space sector is highly technological and innovative, both upstream and downstream, and innovation has been a staple of this sector. This is clearly shown with the more recent development of constellations of small satellites, High-Altitude Platforms (HAPS), reusable rockets, small launchers, horizontal launches and suborbital flights. In addition, new activities are being pursued such as in-orbit servicing, assembling and manufacturing, active debris removal, P2P transportation, and space mining. Not only that, but Artificial Intelligence (AI), robotics, distributed ledger technologies/blockchain, nanotechnology, as well as innovations in satellite manufacturing like Industrial Internet of Things (IIOT), additive manufacturing/3D printing, automation, and serial production are becoming increasingly relevant for the space sector. Downstream, important trends can also be seen, such as the use of Big Data analytics, high-resolution Earth Observation (EO), new methods of delivering data and services such as augmented reality and virtual reality, growth in location-based services, and 5G.

The international legal framework that applies to space activities, like the United Nations Outer Space Treaty, does not expressly cater to all the above innovations in the space sector. These treaties were drafted in a time of traditional space activities led by states. Though some approaches were and are being devised or reflected upon, it is not expected that binding international legal frameworks be developed to respond to the diversity of new challenges brought by space activities.

Some national space laws contain provisions that accommodate innovation in space, such as experimental permits, this is the case for reusable suborbital rockets U.S., or special procedures for obtaining a space license in case of experimental activities, this is the case of the recent Portuguese space law. In other cases, the laws leave some discretion to allow exceptions, like the U.K. Space Industry Act). Some countries have also expressly addressed new space activities, such as suborbital flights (e.g., the U.S. and U.K.) and space mining (U.S. and Luxembourg). But many of the new space trends have not been addressed in current space legal frameworks – this is clearly the case of in-orbit servicing, assembling and manufacturing, and active debris removal. Even in countries with a legal framework for experimental activities, a clear and objective process for testing is missing. Lastly, a point that is often missed is that the space sector does not exist in isolation even when it comes to laws. A new technology, product or process being developed for use in the space sector can be subject to other legal rules: for instance, with relation to energy, environment, or intellectual property.

Because the application of the space legal framework is not fully clear for many of the new and future space activities, and space technology can have legal implications beyond space law, the existence of legal or regulatory systems that can encourage testing innovations has a double benefit: they promote the development of technologies for space with the assistance of regulators whenever required (which also reduces barriers to entry), and they help in assessing the best routes for new smart legal frameworks. Hence, the creation of experimental clauses in laws accompanied by clear procedures, together with the setup of regulatory sandboxes and innovation hubs, can have a relevant role in the space sector.

For example, in 2020 Portugal approved the Resolution of the Council of Ministers No. 29/2020, which establishes the general principles for the creation and regulation of Technological Free Zones. This resolution establishes the general principles for the preparation of a legislative framework to promote research, demonstration and testing activities, in a real-life environment, of innovative technologies, products, services and processes. These Technological Free Zones are not, however, disparate "regulatory sandboxes" or “experimental clauses” applicable to each sector, but, differently, aim to create aligned procedures to facilitate testing technology and products that are cross-sector and integrated (i.e., that cross more than one sector and may therefore be subject to different regulations and regulators). Such an approach can play a relevant role in the space sector as well, as it creates a system whereby innovative space technology can be tested with less burdens and with more support from competent entities (not only the space regulator, but also other entities that may be competent for the technology at hand, e.g., telecoms, cybersecurity, energy, environment, privacy, defense, customs, among others).

Hence, a legal and regulatory framework for experimentation facilitates the performance of tests which in turn allows a better assessment of the technical and commercial viability of technical solutions. This creates legal certainty for market actors both during the tests and when the product enters the market, facilitates financing of the tested product, as well as insurance cover, given the certainty arising from the intervention of the regulator during tests. Tests also give essential information for future laws applicable to novel technologies, as well as to the application of current laws to new activities. This, on its turn, can also contribute to the international discussion and development of principles, guidelines and standards for new space activities. VS

Helena Correia Mendonça is the principal consultant at the Information, Communication & Technology practice at Vieira de Almeida & Associados. Helena has been involved in various space sector projects, both in Europe and Africa. She further works on Emerging Technologies, especially on DLT/Blockchain, AI, robotics, autonomous vehicles and Fintech related issues.