AO 2008-10: Online advertising vendor may sell political advertising services

A corporation that provides an Internet service that permits individuals and nonconnected political committees to post their own online political advertising content and permits individuals to purchase airtime for these ads or ads created by the corporation is considered to be a commercial vendor engaging in bona fide commercial activity. As a result, the corporation does not make prohibited contributions or expenditures under the Federal Election Campaign Act (the Act) by offering its service.

Background

WideOrbit, Inc. (the corporation) sells software packages to manage advertising. As part of its business, it has developed and operates an Internet service named VoterVoter.com (the web site) that allows individuals to purchase television airtime for ads posted on the web site that expressly advocate the election or defeat of federal candidates. Neither WideOrbit, Inc. nor VoterVoter.com is owned or controlled by a candidate, political party or political committee.

Specifically, the web site allows individuals to view ads created by the corporation and by individuals and nonconnected political committees (creators). Then, through the corporation, individuals may purchase TV airtime for the ads that they have either chosen or created. The corporation receives revenue by charging the airtime purchaser a licensing fee for the use of ads created by the company and by obtaining a commission from the TV stations on the airtime bought by each purchaser through the corporation.

If an individual purchases ads created by the corporation, then the corporation will charge that purchaser a licensing fee related to the corporation’s production costs and will receive an airtime commission in an amount sufficient to make a profit on each transaction. When an individual chooses an ad created by a creator, the corporation charges no licensing fee because it incurs no expense to create the ad, and the corporation will be compensated by the commission on the airtime purchased by the individual.

Where purchasers desire a new, customized advertisement, the corporation will arrange with a media creation company for the creation of the ad, with the full costs passed on to the purchaser. As a result of these payment arrangements, the purchaser will pay the corporation the usual and normal charge.

Ads that are posted on the VoterVoter.com web site will not be posted for a fee. The corporation does not charge a fee for uploading or hosting videos when individuals or committees create their own videos to post on the web site, and it requires the creators to affirm that they were not paid by anyone else to create or post their content. The ads created and posted on the web site by the creators and by the corporation expressly advocate the election of clearly identified federal candidates. The business model of the corporation and the web site involves ads that constitute independent expenditures, not coordinated communications. The VoterVoter.com web site will not display the creators’ names. No contact between candidates and creators or purchasers is established or facilitated by the corporation. In addition (with the exception of informing a purchaser of the content of the disclaimer on a political committee-created ad that is being aired), the corporation will not provide any information to actual or prospective purchasers regarding the creator of a given ad, whether other purchasers have also bought airtime for the ad or the scheduling or airing of ads. Similarly, the corporation will not give an ad’s creators any information about the ad’s purchasers or the scheduling or airing of ads. Services are provided on a strictly nonpartisan basis and without regard to political affiliation.

Once a purchaser chooses an ad to run, the corporation advises the purchaser of the Act’s prohibitions and also that the ad will include all required disclaimers. The corporation also offers assistance to purchasers in filling out and filing FEC Form 5 (the form used by individuals and groups to report independent expenditures), but the ultimate reporting responsibility lies with the purchasers.

Analysis

Corporation as commercial vendor engaging in bona fide commercial activity

Under the proposed business model, the ads created by the corporation and by the creators will be viewable by the general public. Although the Act prohibits contributions or expenditures by corporations under 2 U.S.C. §441b, the Commission has determined that the distribution of express advocacy messages to the general public is permissible as “bona fide commercial activity,” and is not a contribution or expenditure, when undertaken by a corporation organized and maintained for commercial purposes only and the activities themselves are for purely commercial purposes. For example, in the context of the sale of political paraphernalia, the Commission looked at factors including whether:

• The activity is engaged in by the vendor for genuinely commercial purposes and not for the purpose of influencing an election;
• The sales of any merchandise involve fundraising activity for candidates or solicitation of political contributions;
• The items are sold at the vendor’s usual and normal charge; and
• The purchases are made by individuals for their personal use. AOs 1994-30 and 1989-21.

The Commission has also considered other factors, including whether the entity is owned, controlled or affiliated with a candidate or political committee; is “in the business” of conducting the type of activity involved; and follows industry standards and usual and normal business practices. Matters Under Review (MURs) 5474 and 5539.

The facts in this case indicate that the corporation will be acting as a commercial vendor for genuinely commercial purposes and not for the purpose of influencing any federal election. Moreover, the corporation is not owned or controlled by a party, candidate or political committee, and its business model does not involve fundraising for any political committee or candidate. The corporation sells airtime at the usual and normal charge and purchasers pay in advance of the corporation’s purchase of the media time requested, and hence in advance of the airing of the ad. These practices are consistent with usual and normal industry practices. In the context of this request, it is also significant that the corporation accepts and posts ads on a nonpartisan basis and seeks to attract creators without regard to the candidates their ads support or oppose.

Costs incurred by creators

Costs incurred by an individual in creating an ad are exempt from the definition of “expenditure,” as long as the creator is not also purchasing TV airtime for the ad he or she created. Under 11 CFR 100.94 and 100.155, an individual, or group of individuals, may engage in uncompensated Internet activities for the purpose of influencing a federal election without a contribution or expenditure resulting. Thus, the posting by uncompensated individuals of ads they create on the web site, where such ads are not posted for a fee, would not be a contribution or expenditure at the time of posting. See 11 CFR 100.94, 100.155 and 100.26. If an individual then pays to have the ad broadcast on television, the costs for creating the ad are no longer covered by the Internet volunteer activity exemption, and thus become part of the expenses for an independent expenditure. See 11 CFR 109.10.

In contrast, if a political committee posts an ad it creates, its costs constitute expenditures and are reportable as such (even if the ad is never televised), because the exemptions at 11 CFR 100.94 and 100.155 do not apply to political committees. If that ad is then aired on TV, the ad’s disclaimers must contain the required information about both the ad’s purchasers and the ad’s creators. 11 CFR 110.11(b)(3) and (c) (4). See AO 2007-20.¹

Political committee status not triggered

The Act defines a political committee as any group of persons that makes expenditures aggregating over $1,000 in a calendar year. This definition does not apply to the individuals who create and purchase ads from the corporation because there is no communication or pre-arrangement between the creator and purchaser, and the corporation has not conveyed any information between them. See 11 CFR 100.5(a). Moreover, purchasers may obtain airtime for an ad that was already purchased and aired by other purchasers, even after reviewing FEC filings by those purchasers. This activity would not by itself be sufficient to cause the purchasers to be considered “a group of persons,” and thus a political committee. The Commission did not address whether any agreements or collaboration between a creator and a purchaser not involving the corporation would result in the formation of a “group of persons” that would be considered a political committee.

In-kind contributions not triggered

Here, given that there is no collaboration between purchasers and creators, the purchase of airtime to run an ad created by a nonconnected committee does not result in an in-kind contribution from the purchaser to the committee. See 11 CFR 100.52(d)(1).

The republication of a candidate’s campaign materials does result in a contribution. However, if an individual independently creates and uses his or her own footage of a candidate’s public appearance in a web site posting and the campaign does not have any ownership rights to the footage, then the footage does not constitute a candidate’s campaign materials and use of it would not represent an in-kind contribution by either the creator or a subsequent purchaser of airtime for the ad. 11 CFR 109.23. The footage may include images of campaign materials (e.g., tee-shirts, buttons and signs customarily displayed at campaign events) without becoming a republication of campaign materials, unless the creator arranged for such materi als to be held up, displayed or worn during the event.

Date Issued: October 24, 2008; Length: 12 pages.

¹ Disclaimers need not appear on ads created by political committees and only posted on the web site, because ads posted on VoterVoter.com are not placed for a fee and, thus, are not a “public communication.” 11 CFR 100.26.