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By Conor H. Kennedy
Editorial Policy

In Citizens United v. Federal Election Commission (“Citizens United”), the Supreme Court nullified a major provision of campaign finance legislation.  The Federal Election Commission (“FEC”) can no longer regulate the mandated disclosure, allowable sources, or contribution limits of corporations’ independent political advocacy.

Prominent legal scholar Lucian Bebchuk argues that the “insiders” who manage companies are now empowered to use direct expenditures to legally entrench themselves atop publicly traded companies, their shareholders’ objections notwithstanding.  From such a powerful vantage, these “insiders” have strong incentives to spend their general treasury funds on political advertising to help candidates who favor legislation benefiting them as a class.

Whether and how “insiders” respond to these incentives is currently up for debate.  Still, increasingly weak shareholder rights or abstract reputational costs are now the sole disciplining factors preventing corporations from deluging our political speech channels with direct expenditures.  It therefore seems more likely than not that business insiders will take full advantage of the emerging legal landscape by significantly increasing political expenditures through the general treasury funds they control.

Accordingly, reform advocacy groups have redoubled their calls to bolster the FEC’s approach to offline coordination standards.  The offline coordination standards govern the degree to which corporations can orchestrate their political spending on television and radio advertising with specific candidates or parties.  The courts have rejected the FEC’s prior offline coordination standards, but not because of empirical evidence that specific advertisements have been actually coordinated.  As noted in the latest court opinion overturning the FEC’s offline coordination regulations, “no such evidence has yet been identified[, but that] is far from a guarantee that no such evidence will develop in the future.”

Advocacy groups like the Campaign Legal Center are picking up where court oversight left off, both by testifying in front of the FEC to stave off the prospect of substantial coordination and by urging Congress to write its own, stronger coordination standards to compel the FEC to act. This Comment hopes to contribute to the advocacy effort by suggesting that Congress and the FEC should consider altering online coordination standards as well.

The FEC’s online coordination standards were not challenged or overturned in the latest round of court review, even though they exempted any expenditures on political messaging distributed through free online services like YouTube.[i] A 2009 Columbia Law Review student comment highlighted the potential for abuse of virtually unregulated online political expenditures.

In the next few election cycles, the loci of political news and commentary will continue to migrate online.  The groups influencing that process are likely to allocate their investments toward ventures which have worked in the past.  The “Yes We Can” web video, commonly known as one of the most successful and innovative online expenditures in the 2008 campaign, bares the trappings of the political advertising we can anticipate in the near future: an unregulated third party funded the production of a web video which a candidate then spread to millions of supporters.

There is no reason to believe that the “Yes We Can” video was coordinated with the Democratic Party or the Obama campaign. However, one might expect that a prolonged, systematic effort to emulate its production and distribution model would foreseeably lead corporate spenders to take advantage of the non-regulation of coordinated online expenditures.  After all, when a corporation can coordinate one type of expenditure (i.e., expenditures distributed on free internet services) guaranteed to mesh with its preferred candidate or party’s dynamic efforts to shape the 24-hour news cycle, but cannot coordinate other expenditures (i.e., offline expenditures), the corporation has an incentive to move its money toward the coordinated expenditure.  Now that Citizens United has provided additional incentives for professional managers to invest their general treasury money on campaign expenditures, they also have additional incentives to research the most effective legal ways in which to do so.  We are therefore likely to witness a growing effort to exploit the online coordination standard.

This week, the FEC is hearing testimony about proposed post-Citizens United coordination standards.  Once the FEC sets a baseline by promulgating new standards, Congress is prepared to readjust that baseline to its own liking.  I argue that both entities should make preemptive efforts to regulate now instead of sweeping up after an election cycle of substantial online coordination.

The State of the Law: Corporations and Campaign Finance

In the wake of Citizens United, corporations are still barred from spending their general treasury funds on two of the most effective methods for shaping specific outcomes in federal elections.  Corporations cannot make direct contributions to federal candidates, nor can they coordinate their own political issue advertising with anyone connected to federal campaigns.[ii] As the Supreme Court explained:

“The absence of prearrangement and coordination of expenditure with the candidate or his agent not only undermines the value of the expenditure to the candidate, but also alleviates the danger that the expenditures will be given as a quid pro quo for improper commitments from the candidates.”

This rationale notwithstanding, there have been three existing exceptions to these general prohibitions, even before Citizens United.

First, a corporation can legally spend funds on “the establishment, administration, and solicitation of contributions to a separate segregated fund” called a Political Action Committee (PAC).[iii] Corporations cannot use their own PACs to spend treasury money on candidates or issue advertisements; but they can spend the pool of PAC money solicited from individual stockholders and high-level corporate personnel.[iv]

Second, corporations can spend unregulated (i.e., unlimited) money developing and disseminating “any news story, commentary, or editorial distributed through the facilities of any broadcasting station, newspaper, magazine, or other periodical publication.”[v] The FEC has ruled that this exemption applies to traditional press entities like the cable network CSPAN.[vi] Since 2007, the National Rifle Association has been driving a wedge between the spirit and the letter of the media exemption by broadcasting an unregulated radio news and opinion program that “attack[s] or praise[s] candidates.”

Third, and relevant here, a corporation can spend money online.  The Bipartisan Campaign Reform Act explicitly bars direct expenditures made “in cooperation, consultation, or concert with, or at the request or suggestion of” the candidate, the candidate’s authorized committee, or their agents.[vii] However, a more lax standard governs the coordination with political parties; the FEC will determine whether that standard continues to govern direct corporate expenditures used to develop web advertisements distributed for free over the Internet.

The Current Coordination Standard

In 2002, the FEC promulgated rules baring such coordination in the offline arena, but it explicitly carved any internet communications out of this party coordination standard.  Federal District Judge Kollar-Kotelly rejected the Internet carve out, asserting: “to allow such expenditures to be made unregulated would permit rampant circumvention of the campaign finance laws and foster corruption or the appearance of corruption.”  She remanded to the FEC to make a more robust set of internet communication rules that better reflected Congressional intent.

On remand, the FEC added paid advertising on third party websites to the communications coordination standard, leaving untouched an important channel for future political speech entrepreneurs.[viii] That is, now that Citizens United has unleashed direct political expenditures, a corporation can spend unlimited amounts of money to develop web-based advertisements in complete coordination with a national party.[ix] Since the FEC regulations only apply to paid advertising, corporations can also use free online tools to reach millions without triggering or violating any existing campaign finance rule.[x]

“Yes We Can” and HD Video

The production model which first made this channel useful began with the “Yes We Can” video from February of 2008.  Producers William James Adams, Mike Jurkovac, Fred Goldring, Jesse Dylan, and Priscilla Cohen teamed up with other celebrity singers to produce a high quality video remix of a speech by then-candidate Barack Obama.  The black-and-white music video “invoke[ed] notions of the 60s Civil Rights movement, and [drew] oblique yet deliberate comparison[s] to two of the most inspirational and affectionately recalled American leaders, President Kennedy and Martin Luther King Jr.”  Once published in early February 2008, the video spread across social networking sites.  That motivated traditional media outlets from ABC News Now to the Boston Globe to engage the video’s creators and pick apart their message.  Most notably, the Obama campaign embedded the video on their official blog and set up a form for supporters to email it to their friends.  In sum, a third party paid an undisclosed amount for a highly professional web-based advertisement featuring a number of A-list celebrities, and the video reached millions of voters, partly due to its own viral potential, but also because the candidate spread it to supporters directly.

The “Yes We Can” video was only the first major step toward professional-level investments in political video productions which rely on free distribution systems to popularize their final products.  There is one substantial caveat: if a corporation paid for a similar production featuring a specific candidate’s speeches, the video might violate the still-constitutional regulations which prohibit corporations and unions from spending their funds on “express advocacy.”  Still, even without featuring specific candidates, Citizens United now empowers corporations to spend an unlimited amount of money to produce and distribute online issue advertisements more evocative than the “Yes We Can” video.  After all, the Supreme Court has acknowledged that there is no noticeable effectiveness gap between “express advocacy” that names or features a specific candidate and issue advertisements which champion or denounce the candidate’s pet issue.  In fact, corporate managers who spend general treasury funds to produce and distribute issue advertisements might even outperform the “Yes We Can” video’s producers.  With the right counsel, they are bound to realize the additional effectiveness yielded by complete coordination with political parties that know how to best craft the tone, wording, soundtrack, cast, and length of the videos.

Furthermore, corporations can afford to invest in their own online infrastructure; for example, to leverage new audiovisual techniques that make advertisements more appealing.  When technology product reviewer CNET analyzed and ranked the overall quality and user experience of HD web video hosting over time, it found that YouTube improved from worst to first in less than one year.  It is only reasonable to expect additional investments to continue enhancing streaming speed, sound quality, start up time, full-screen mode, and maximum video length.

Imagining that any given corporation provides the upfront funding for the additional technological capacity (again, because FEC regulations ban coordination for paid advertising on third party sites, the host would need to provide its services for free), other corporations could use the resulting, more powerful platform for political video productions fully coordinated with national or state parties.  Just like with the “Yes We Can” video, the producers could release their final products online for free.  This time, they could also coordinate with any given party’s campaign strategy, allowing parties or even specific candidates then to post the coordinated issue advertisements on their own blogs, channel them to sympathetic bloggers, and send them out with email blasts to funders and supporters.

Many of these web advertisements are bound to wind up on the evening news – the cheaper alternative to directly spending money on placements during commercial breaks.  The shift to new media has become its own news story, and cable news networks like Fox News and MSNBC can leverage the FEC precedent established when more traditional news networks requested formal pre-clearance to feature full length advertisements in their segments.  As the FEC explained in exempting C-SPAN’s publication of candidate commercials and biographies: “These materials would be aired because they have significant news value, and because they assist viewers in understanding the complex issues discussed by the candidates.”[xi] Furthermore, ABC News Now featured the “Yes We Can” video in full, and as the Boston Globe reported in February of 2008, “most Americans heard about the most famous viral videos because they saw them replayed on TV.”  It is not a far leap to anticipate unregulated networks featuring political web videos “that have significant news value” and citing the recent past to defend themselves in administrative proceedings.

In sum, corporations can now legally spend unlimited amounts of money producing issue advertisements, which they are bound to realize can be coordinated with parties and then disseminated online and, because of the media exemption, to millions of viewers through television news networks.

Costs and Benefits Going Forward

The FEC is holding a series of hearings this week to reconsider its approach to the online coordination standard and the media exemption, in the wake of Citizens United.  If the FEC and Congress maintain the current legal framework, either by refusing to change existing regulations or only nominally shifting them, we will likely witness a significant influx of new political speech which will reconfigure the online ecosystem.

Of course, the potential changes have foreseeable benefits.  To quote Uncle Victor from the 1971 movie Harold and Maude: “Hell. World War II gave us the ballpoint pen.”  Right now, a dearth of monetizable business models hinders the latent potential for genuinely exponential innovation.  When corporations measure “Return on Investment” in votes for specific candidates rather than monetary revenues, they are far more likely to invest in experimental technology without regard for immediate dollar profits.  Beyond HD video, enhanced corporate funding for the next generation of political speech entrepreneurs could generate any number of radical online innovations.

The foreseeable costs, however, are significant as well.  Most corporations will not consider long-term social (networking) contracts with Internet users (e.g., Google’s unofficial “Don’t Be Evil” motto), making which them less hesitant to abuse the law for political ends.  For instance, if corporations own the copyrights to the political web videos constituting a large portion of election cycle discourse, they will be willing and able to deploy DMCA “takedowns” and Strategic Lawsuits Against Public Participation (“SLAPP”) suits to strategically censor critical republications and remixes.  Whether successful on the merits, these tactics will have chilling effects on any political speech reappropriating the end products of corporate investment, with the eventual consequence of seriously degrading political commentary.

The FEC and Congress will no doubt receive a veritable portfolio of new and interesting regulatory techniques, and it currently wields enough political capital to use them.  Given the potential for abuse which the online coordination standard presents in the wake of Citizens United, it would behoove both sets of regulators to find a way to prevent corporations from exploiting the absence of effective online regulation. Recent polls highlight a bipartisan distaste for the Supreme Court’s First Amendment extremism, and congressional incumbents have good reason to design innovative policies that protect them from an overwhelming, corporate-funded electoral insurgency.

By helping to guarantee that our governing institutions are primarily dependent on the democratic electorate, stronger online coordination standards would work toward actually uniting the citizenry behind our electoral institutions and administrative state.  The more unilateral power over specific electoral outcomes which the Supreme Court’s ruling lends to Bebchuk’s “insiders,” the less responsive our government will be.  The nature and strength of each commissioner’s or representative’s preferred intervention will no doubt vary, but what should unite beltway actors is a genuine intention to funnel corporate political money away from the perils which the Supreme Court has recognized for decades and which Americans have acknowledged since the founding of our country.


[i] See 11 C.F.R § 109.21(a)(2); 11 C.F.R. § 109.21(c); 11 C.F.R. §  100.26 (”The term general public political advertising shall not include communications over the Internet, except for communications placed for a fee on another person’s Web site.”).

[ii] See 2 U.S.C. § 441a(a)(7)(B)(i).

[iii] See 2 U.S.C. § 441b (b)(2)(C).

[iv] Id.

[v] 2 U.S.C. § 431(9)(B). See 11 C.F.R. § 100.73.

[vi] See FEC Advisory Op. 1996-48 (Dec. 6, 1996) (follow “search” button).

[vii] See 2 U.S.C. § 431(9)(B). Cf. Federal Election Com’n v. Colorado Republican Federal Campaign Committee, 533 US 431, 467-8 (2001) (“Take, for example, a situation in which the party develops a television advertising campaign touting a candidate’s record on education, and the party simply ‘consult[s],’ 2 U.S.C. § 441a(a)(7)(B)(i), with the candidate on which time slot the advertisement should run for maximum effectiveness. I see no constitutional difference between this expenditure and a purely independent one.”).

[viii] See 11 C.F.R § 109.21(a)(2); 11 C.F.R. § 109.21(c); 11 C.F.R. §  100.26 (”The term general public political advertising shall not include communications over the Internet, except for communications placed for a fee on another person’s Web site.”).

[ix] Id.

[x] Id.

[xi] See FEC Advisory Op. 1996-48 (Dec. 6, 1996) (follow “search” button).

Posted On Mar - 3 - 2010 5 Comments

5 Responses so far.

  1. Herkimer says:

    Thanks for posting this; just found your blog searching around. Keep up the good work!

  2. Can’t we pass a law that make it illegal for a politician to vote in a way which financially benefits a campaign contributor?
    I think our political system is rotten to the core and a move like this is needed to chase all the foxes out of the hen house.

  3. Bob Danforth says:

    I do not believe that direct open support by very large corporations will ever be much of an issue. An ad that says “We’re Exxon and we would like to drill for oil off Florida, and XYZ candidate is our guy who will make this happen” would be as refreshing and shocking as it would be unlikely so Honest free speech equivalent to my saying “I would like Universal Health Care, and XYZ candidate can do this.” is not even an issue.

    Instead the real issue is one of subversion, dirty tricks, and fraud. Corporate shells as Astroturf with Orwellian names like “Citizens United” who claim to be made up of partisans of a very different mold than the actual shadow folk hiding behind veils of “privacy” are perfectly able to use any convoluted “doublethink” strategy to attack several people or issues only slightly related to their actual goals while hiding everything about themselves and their motives.

    They could even attack their favored candidate with the truth pretending to be a common enemy, and thus removing that issue as using it would paint the opposition as supporting that enemy. If many sides began to use this in ever more obtuse ways, not only does democratic voting become a bad joke, but even following the flow of power becomes more obtuse than following Chinese or the old Kremlin politics.

  4. CT Personal Injury Lawyer says:

    Good article, but nothing new. It just shows how many loopholes or tax breaks the big corporations can work around. How about the fact that some of these companies can take out life insurance policies on their employees? I think some of these laws need to be re-evaluated. Appreciate the post man, and subscribed to the blog!

  5. The people are loosing their moral while becoming modern. The society needs to be attentive that moral value.

    One Law Center
    ***********
    gregg

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