Proposed 'Digital Flag State' Rule Could Boost Space Law Regulations

A new framework would clarify data sovereignty laws for satellites and orbital data centers.

Published on Feb. 24, 2026

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As the space industry develops servers that can process data in orbit, a key regulatory challenge is determining which country's data laws apply to information that is constantly moving between different jurisdictions. Experts argue that adopting a 'digital flag state' model, similar to maritime law, could provide a clear regulatory framework by designating the country where a satellite is registered as the governing authority for data residency, rather than the satellite's constantly changing location.

Why it matters

Clarifying data sovereignty rules for the space industry is critical for high-compliance sectors like finance, healthcare, and defense that are looking to utilize orbital data processing. The current ambiguity around data residency laws is hindering the growth of the orbital economy, as companies are hesitant to send sensitive data to space without clear compliance guidelines.

The details

Under the proposed 'digital flag state' framework, a satellite licensed in the US would be treated as US soil for data privacy and export control purposes, as long as it uses secure hardware that prevents foreign access. Data sovereignty laws would only apply at the ground station uplink and downlink points, not during the satellite's orbit. This would provide a clear regulatory standard, rather than having data legality flicker based on the satellite's ever-changing location.

  • The 1967 Outer Space Treaty legally designated orbit as a global commons, free from national sovereignty.
  • Existing terrestrial data regulations like GDPR and ITAR have not been updated to reflect the realities of the orbital economy.

The players

Joseph Yaffe

The chief operating officer and chief legal officer at Aetherflux, where he leads the global operations and regulatory strategy, and a retired partner at Skadden.

Aetherflux

A company developing technology for the orbital economy.

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What they’re saying

“If we force orbital data centers to comply with a patchwork of 190 different national data laws every 90 minutes, the friction will cripple the industry.”

— Joseph Yaffe, Chief Operating Officer and Chief Legal Officer, Aetherflux (Bloomberg Law)

What’s next

The US has an opportunity to lead the way in establishing a 'digital flag state' regulatory framework for the space industry, which could provide much-needed clarity and confidence for companies looking to utilize orbital data processing.

The takeaway

Adopting a 'digital flag state' model for space-based data processing could help resolve the regulatory ambiguity around data sovereignty laws, enabling the growth of the orbital economy and unlocking new opportunities for high-compliance industries to leverage space-based computing.