On January 21, 2010, the Supreme Court ushered in a new dawn on corporate political spending in its decision in Citizens United v. Federal Election Commission, 558 U.S. ___ 2010. In this decision, the Court held, inter alia, that corporations will now be able to use their general treasuries to fund direct political advertising against candidates for local, state or federal office, or what it is termed “express advocacy.” This decision reverses decades of statutory and case law that prohibits express advocacy by corporations, out of concerns of the distortive effects that the corporate purse would have on political speech. How corporations react to Citizens United when deciding whether and how to fund political advertisements remains to be seen. However, it is clear that corporations, labor unions, and, most likely, trade associations, now face a vastly different regulatory environment. This article discusses the elements of the Citizens United decision, including which campaign finance requirements are changed and which remain the same. It also provides a roadmap as to what to expect next, including regulations from the Federal Election Commission (“FEC”) and possible responses to the decision from Congress and the Obama Administration.

Background on Citizens United

The case concerns a documentary critical of then-presidential candidate Sen. Hillary Clinton, released in 2008 by the nonprofit corporation, Citizens United. The group intended to make the movie available via a “Video on Demand” service and wished to run television and radio advertisements promoting it. However, because those advertisements were scheduled to run within 30 days of a primary election where Sen. Clinton was on the ballot, they ran afoul of federal prohibitions on “electioneering activities” put in place by the Bipartisan Campaign Finance Reform Act of 2002, 2 U.S.C. § 441b(c) (known as “BCRA” and also by the names of its Senate sponsors, “McCain-Feingold”).

These prohibitions, as spelled out in subsequent federal regulations, define electioneering activities to include: (1) communications made by either broadcast, cable or satellite (but not the World Wide Web); (2) which refer to a clearly identified candidate for federal office; and (3) are made within 30 days of a primary election or 60 days of a general election. 11 C.F.R. § 100.29(a)(2). They also require corporations to identify themselves in their advertisements. These types of electioneering activities are also referred to as “issue ads” because they discuss candidates in the context of issues without specifically advocating the candidates’ election or defeat, and are often done by corporations as a way to evade restrictions on express advocacy.

Citizens United sought injunctive relief, which was denied in the D.C. District Court. The Supreme Court then granted certiorari. The case was argued twice before the Court, after it requested supplemental briefs on the question of whether the McCain-Feingold restrictions on electioneering violated Citizens United’s First Amendment rights to free speech.

The Supreme Court’s Decision

Voting 5–4, the Supreme Court went beyond a statutory interpretation of the electioneering provisions of McCain-Feingold in a sweeping decision addressing corporate political speech. The Supreme Court held:

  • McCain-Feingold’s prohibitions against express advocacy advertisements by nncorporations were unconstitutional
  • McCain-Feingold’s prohibitions against electioneering activities within close nnproximity of a primary or general election were unconstitutional
  • McCain-Feingold’s disclaimer and disclosure requirements for electioneering nnactivities in general were constitutional

The Court held that prohibiting corporations from using their general treasury funds to pay for campaign advertisements for or against a political candidate violated First Amendment protections on free speech. These prohibitions were not included by McCain-Feingold but were instead drafted as part of the underlying statute amended by McCain-Feingold, the Federal Elections Communication Act of 1971, 2 U.S.C. § 441b(a), upheld by the Supreme Court in Austin v. Michigan Chamber of Commerce, 494 U.S. 652 (1990). The Supreme Court determined it could not analyze McCain-Feingold’s electioneering restrictions without looking at First Amendment restrictions on corporate speech, citing the “chilling” effect on free speech when a corporation is forced, in effect, to ask advice from the FEC before issuing an advertisement (page 18 of decision). It used this discussion to reach a conclusion that the broader ban on express advocacy, along with the narrower electioneering restrictions of McCain-Feingold, were unconstitutional and overruled the Austin decision. The Supreme Court, however, upheld requirements under McCain-Feingold that a the corporation behind an electioneering advertisement identify itself. 2 U.S.C. § 431(17). It reasoned that disclosure requirements were justified to inform the electorate about those behind an advertisement (pages 51–52 of decision).

Who is covered by the Supreme Court’s decision in Citizens United?

The FEC, prior to issuing formal rules, is anticipated to provide “guidance” concerning the reach of Citizens United. We have learned, through subsequent conversations with FEC counsel, that it would interpret the scope of Citizens United to include both for-profit corporations and nonprofit corporations, such as those meeting the definitions of (501)(c)(3) and 501(c)(4) of the Internal Revenue Code. Further, the Supreme Court decision, while directly applying to domestic corporations, may or may not apply to foreign corporations with operations in the United States. Clarification on this application is anticipated by further regulation. In addition, it is probable that the decision would apply to labor unions as well, given that the statute affected applies to labor unions. As for trade associations, it is likely that they would also be included under subsequent rules as the FEC considers them the same as corporations for purposes of regulations. Finally, we note that the Citizens United decision applies to all elections on the local, state, and federal levels. Therefore, it should be anticipated as overturning laws that ban corporate political spending currently on the books in 24 states, as well as any criminal prosecutions based on those laws.

What remains the same and what is expected to change?

The Citizens United decision affects every election in the country, from Mayor to President. Corporations will be able to fund any type of advertisement directly and no longer have to face the requirement of first establishing a separate segregated fund for this purpose, commonly known as a political action committee or PAC. As a result, there is the potential for an unlimited amount of funding to be spent on elections and have a resulting substantial impact, especially on the state and local level. Additional regulation and guidance from the FEC is needed to both interpret the decision and define its reach. The Reed Smith Public Policy & Infrastructure Practice will monitor these developments and provide updates accordingly.

We do provide this analysis of what is known so far, as follows:

  • Corporations still cannot make direct contributions to political campaigns. The Court’s decision applies to advertisements only. If a corporation wants to make a direct donation to a candidate for office, it must establish a PAC to do so.

However, we do note the majority’s language in Citizens United that may indicate a willingness to consider a case challenging this restriction:

Differential treatment of media corporations and other corporations cannot be squared with the First Amendment and there is no support for the view that the Amendment’s original meaning would permit suppressing media corporations’ political speech (page 5 of decision).

  • Disclosure requirements for electioneering communications were kept intact by the Supreme Court and will likely apply to express advocacy as well. As spelled out by federal regulation, these requirements provide that the communication must include a disclaimer that clearly states “the full name and permanent street address, telephone number, or World Wide Web address of the person who paid for the communication, and that the communication is not authorized by any candidate or candidate’s committee.” 11 C.F.R. § 110.11(b)(3).
  • While corporations can advocate the election or defeat of a client, corporations still face potential restrictions on the amount they can spend on this type of advocacy, if the ads are done in coordination with a candidate or political campaign. Under federal regulations, any advertisement done in coordination with a political candidate or campaign is considered to be an “in-kind” contribution to a campaign. It is still allowable, but subject to contribution limits (i.e., treated the same as a cash contribution). 11 C.F.R. § 109.22. The FEC is expected to issue rules concerning how express advocacy fits here, but we provide an analysis of the three-part test currently in place to determine if an advertisement is considered independent of a campaign:
    • Payment for the advertisement must be from someone other than a candidate, a candidate’s authorized committee, a political party committee or any agent. 11 C.F.R. § 109.2.
    • The advertisement must not republish, disseminate, or distribute in whole nnor in part campaign materials prepared by a candidate or campaign committee. 11 C.F.R. § 100.29.
    • The advertisement must not be done either at the request or suggestion nnof the candidate or committee; with the candidate or committee’s material involvement; after one or more substantial discussions with the candidate or committee; by using a common vendor to create, produce or distribute the communication; or by a former employee or independent contractor of the campaign committee. 11 C.F.R. § 100.30.

As noted, Reed Smith’s Public Policy & Infrastructure Practice expects additional guidance and regulation from the FEC on the rules. However, we also expect legislative response from Congress as well as from the Obama administration. Sen. Charles Schumer (D-N.Y.), the chair of the Senate Rules Committee, has announced that he will hold hearings on the issue and draft legislation that will include, among other things, limits on corporate spending, as well as additional disclosure requirements. In addition, President Obama has announced his disappointment with the decision and his intention to address the issue through legislation. We will monitor these developments and provide updates as warranted.

Conclusion and Some Recommended Actions

Citizens United represents a sea change in campaign finance law. With guidance expected soon from the FEC, corporations, nonprofits and labor unions can already anticipate some of the basic direction to be provided. Although more formal requirements, and perhaps legislation, are yet to come, careful planning of future “advertisements” can now begin. Additionally, affected entities can and should: (1) pay particular attention to any suggested legislation, and take steps to at least monitor these developments; (2) actively seek opportunities to participate in supplying comments, including testimony, when such legislation is being developed; (3) take part in any rulemaking that is announced; and (4) consider initiating “unsolicited” proposals to congressional members. Other strategies are also available, even at this relatively early time. It benefits all those potentially affected to become architects of the coming new age.