1

FEDERAL ELECTION COMMISSION

PUBLIC HEARING ON INTERNET COMMUNICATIONS

Tuesday, June 28, 2005

9:36 a.m.

Ninth Floor Hearing Room

999 E Street, N.W.

Washington, D.C.

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I N D E X

ITEM PAGE

Opening Remarks 3

Panel 1

Michael Krempasky, RedState.org 14

John B. Morris, Jr., Center for Democracy

and Technology 21

Markos Moulitsas Zuniga, DailyKos.com 26

Lawrence M. Noble, Center for Responsive

Politics 33

Questions and Answers 38

Panel 2

Carol Darr, Institute for Politics,

Democracy and the Internet 119

Marc E. Elias, John Kerry for President,

Inc. and Kerry-Edwards 2004, Inc. 126

Don Simon, Democracy 21 132

Matt Stoller, BOPnews.com 138

Questions and Answers 146

Panel 3

Peter Bearse, Ph.D., economist and author

of We the People: A Conservative Populism 217

John Connolly, Print Debate Center, Inc. 222

Questions and Answers 230

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P R O C E E D I N G S

CHAIRMAN THOMAS: Good morning. Let us

get underway if we can. Good morning. The special

session of the Federal Election Commission for

Tuesday, June 28, 2005, will please come to order.

I\'d like to welcome everyone to the Commission\'s

hearing on proposed rules for Internet

communications. The proposed rules were included

in a Notice of Proposed Rulemaking that was

published in the Federal Register on April 4, 2005.

A Federal District Court had declared the

Commission\'s 2002 regulations in this area invalid.

The proposed rules address several aspects

of Internet communications: first, the rules would

change the definition of the term public

communication to include certain paid

advertisements on the Internet; second, the rules

would slightly revise the disclaimer requirements

for Internet communications involving the use of

commercial email lists; third, the rules would

exempt certain independent as well as volunteer

activity on the Internet from the definitions of

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contribution and expenditure used in the campaign

finance area; fourth, the rules would clarify that

the allowances regarding individuals\' use of

corporate or labor organization facilities apply to

the use of computers, software, and other Internet

experience and services. Lastly, the rules would

expressly exempt media activity on the Internet

from the definitions of contribution and

expenditure.

I would like to thank very briefly our

staff and the Office of General Counsel for their

hard work on this rulemaking. I would also like to

thank all the people who took the time and effort

to comment on the proposed rules and in particular

those who have come here today to give us the

benefit of their practical experience and expertise

on issues raised by the proposed rules.

I would like to describe briefly the

format that we will be following for the next two

days. We expect to have a total of 21 witnesses,

who have been divided among six panels. We will

hear from three panels today and three panels

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tomorrow. We plan to have each panel last for one

and a half hours, except for our third panel today,

which will last for only an hour.

Each witness will have five minutes to

make an opening statement. We have a light system

at the witness table to help you keep track of your

time. The green light will start to flash when you

have one minute left. The yellow light will go on

when you have 30 seconds left. And the red light

means that it\'s time to wrap up your remarks. The

balance of the time is reserved for questioning by

the Commission. For each panel, we will have at

least one round of questions from the

Commissioners, our general counsel, and our staff

director. There will be a second round if time

permits.

We will have a short break between the

first two panels followed by a lunch break after

the second panel. The hearing will resume after

lunch, with the third panel beginning at 2:30. We

have a busy day ahead of us, and we appreciate

everyone\'s cooperation in helping us stay on

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schedule.

I understand that some of my colleagues

would like to make opening statements. I note that

we have only a very few minutes allotted for

opening remarks by the Commission, so I am asking

forbearance on going on too long. I will not make

any opening remarks myself on the merits. I will

turn it over to anyone else of my colleagues who

would like to make a statement.

Vice-Chairman Toner.

VICE-CHAIRMAN TONER: Thank you, Mr.

Chairman. I will try to be brief. I appreciate

the chance to say a few things at the outset.

I want to thank also all the witnesses for

being here today, and I think your testimony over

the next couple of days will be very helpful to the

Commission. The central question in this

rulemaking is whether the Federal Government will

begin regulating the political speech of Americans

over the Internet. Several key principles guide my

thinking on this rulemaking: first, some

commenters contend that in light of the District

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Court\'s ruling in Shays, the Commission has no

choice but to regulate online politics, at least in

some manner.

I do not agree. The Commission is

challenging the legal standing of the Shays

plaintiffs and is currently awaiting a ruling on

this issue from the D.C. Circuit. If the

Commission prevails on appeal, the District Court\'s

ruling could be vacated and made null and void.

Moreover, even if the Shays ruling is upheld on

appeal, it would only apply in the District of

Columbia and would not be a binding decision

anywhere else in the United States, including the

other 10 Circuit Courts of Appeals.

If the Commission decides to regulate

online political speech, it should only do so if a

majority of Commissioners conclude independently,

apart from the Shays ruling, that the McCain-Feingold law

requires the FEC to regulate the

Internet.

Second, I remain highly skeptical that the

McCain-Feingold law requires the Commission to

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regulate the Internet or alter its current

regulations in any manner. The evidence has

mounted during this rulemaking proceeding that

Congress did not intend for the Commission to

regulate the Internet. Senators Kerry and Edwards

filed comments with the Commission stating

categorically that Congress did not intend to

create new barriers to Internet use when it passed

the McCain-Feingold law.

Similarly, Senate Minority Leader Harry

Reid sent a letter to the FEC earlier this year

expressing serious concerns about the Commission\'s

Internet rulemaking and has introduced legislation

that would specifically exempt the Internet from

the statutory definition of public communication.

Earlier this month, the House Administration

Committee passed legislation containing the

statutory exemptions that Senator Reid proposes

regarding the Internet, and the full House is

expected to act shortly on that legislation.

At the broadest level, I think this

rulemaking challenges us to answer the following

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question: must every aspect of American politics

be regulated by the Federal Election Commission?

Can there not be any part of politics that is free

of government review, investigations and potential

enforcement actions?

I acknowledge that is a difficult question

to answer. I think the Internet may be the most

promising medium in American politics to remain

free of regulation. The Commission\'s action in

this rulemaking will determine whether people of

all political persuasions will be able to continue

supporting candidates of their choice on the

Internet free from any legal concerns or

challenges. I look forward to working with

everyone at the Commission as it decides this

important question.

Thank you, Mr. Chairman.

CHAIRMAN THOMAS: Do any of my other

colleagues wish to make an opening statement? No?

Yes? Commissioner Weintraub.

COMMISSIONER WEINTRAUB: Thank you, Mr.

Chairman. I\'ll be brief.

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First of all, I\'d like to welcome all the

witnesses, and I want to especially thank the over

800 private citizens around the country who offered

comments regarding the Commission\'s proposals. The

resounding message that has been conveyed by these

commenters is that the Internet has emerged as the

great equalizer in political debate, raising the

vast and diverse voices of common citizens above

the established voices of other media.

As a commenter from Seattle wrote, I used

political blogs to enhance and expand my

understanding of the issues pertaining to the 2004

Presidential elections and honestly believe that I

would not have been as informed a voter as

otherwise. One of the best things about the

Internet for me is the multitude of voices to be

found, from every perspective and standpoint.

Andrew Collins of Portland, Oregon urged

us to please understand that the immediate free

flow of ideas worldwide from all sides that one

currently finds on the Internet is the greatest

promoter and safeguard to democracy that we have

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ever seen. It will only get better as new bloggers

from presently oppressed countries start throwing

in their two cents.

The Internet can be an antidote to the

cynicism that develops when the citizenry feels

that they have no voice. Many of the comments

provide first hand insight into how the medium

provides an outlet that many people believe is not

otherwise available. Anthony Ross of San Jose,

California, wrote that maybe the greatest value of

blogs is that individuals can convey and share

their views without large institutional

intermediaries that keep all but a very few people

from effectively speaking. Blogs provide a kind of

middle class in the economy of information and can

have a stabilizing effect if they are not driven

out of the marketplace.

I look forward to the testimony of those

who will appear before us today and tomorrow. We

invited the commenters to look carefully at our

proposals and tell us what we can do better to

protect expression while still complying with the

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Court order that made this rulemaking necessary.

We have received some very detailed and insightful

examinations of our proposals and will carefully

consider these comments as we shape the final rule.

I appreciate that many of the comments

have been generally supportive of the Commission\'s

focus and precision in this sensitive area. To the

many people who took the time to write to us, your

comments have been very constructive and helpful.

I anticipate an illuminating discussion with the

witnesses.

CHAIRMAN THOMAS: Anybody else want to

make any opening remarks?

Commissioner Mason?

COMMISSIONER MASON: Thank you, Mr.

Chairman.

I apologize for being late. I just wanted

to make clear that it would have been my preference

to appeal the decision which has left us here. I

think that would have been the wise choice. I

supported the initial rule which would have left

the Internet free of regulation, and I think it is

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unfortunate that we are in the position we are now

where we are in effect under a court order.

I am certainly open to any route that

Vice-Chairman Toner might suggest that would get us

back to an ability to do that, but it is not clear

to me what it is, and so, I just want to note for

the witnesses who are here I am going to ask

questions probing about how we ought to regulate,

because I think at this point, as I understand it,

we are in a position where we are going to have to

write a regulation and have to make some

distinctions.

And I just want it understood that from my

point, I would prefer not to be doing this. I

would prefer not to have that task. But given that

it does appear to be before us, I think at a

minimum, we want to do it in a way that is easy for

people to understand, that\'s as minimally invasive

as possible, but I just want to make it clear that

I think any of this is unfortunate, and it is a

task that I don\'t relish.

CHAIRMAN THOMAS: Commissioner Smith.

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COMMISSIONER SMITH: Mr. Chairman, my

opening statement is what he said.

\[Laughter.\]

CHAIRMAN THOMAS: Ditto, then, huh?

Very well. Let\'s get underway, if we

could. Our first panel this morning consists of

Michael Krempasky, creator of RedState.org; John

Morris, Jr., staff counsel for the Center for

Democracy and Technology; Markos Moulitsas Zuniga,

founder of the Website DailyKos; and Lawrence

Noble, executive director of the Center for

Responsive Politics and former general counsel here

at the Commission.

We generally follow the alphabet here,

which means that unless you gentlemen have agreed

otherwise, we will start with Mr. Krempasky, and

then we will go to Mr. Morris, then Mr. Moulitsas,

and Mr. Noble at the end. Thank you. Good

morning. Hello again. Nice to see you again.

MR. KREMPASKY: Good morning.

First, I would just like to thank the

Commission for allowing me to participate in these

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hearings. You are each due a great deal of credit

for your tremendous sensitivity to the issues of

speech and freedom as you contemplate these rules.

Today, you consider rules that will affect

millions of people, not just the 11 million blogs

currently indexed by search engines but the

millions of people who currently have the freedom

to take a few minutes, join the blogosphere, and

add their voice to our political conversation. I

will focus my testimony this morning on the media

exemption. My hope is that the Commission will

take specific and discrete steps to ensure that no

blogger, no amateur activist, and no self-published

pundit ever need consult with legal counsel and

fear the regulatory might of the Federal

Government.

Our current campaign finance regulations

touch nearly every area of political participation

by associations, corporations, candidates,

political parties, and individuals. But one group

is notably and for practical purposes completely

exempt: the news media. The Commission is now

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considering the proper scope of that exemption, as

it has asked, should the exemption be limited to

entities who are media entities and who are

covering or carrying a news story commentary or

editorial.

With respect, the question properly formed

should have been can the exemption be limited? And

the answer to that must be an emphatic no. There

is no doubt that bloggers are media entities, nor

is there any doubt that the tradition of citizen

journalists is a long accepted part of our national

culture. From before the very founding of our

country, individuals and relative unknowns have

contributed to this great conversation.

The boundaries defining who or what is a

quote-unquote media entity have eroded to the point

of irrelevance. No longer do we have a limited

number of easily defined outlets or a restricted

professional community. Government rules and

regulations granting media bona fides and all the

associated privileges to some while denying those

credentials to others would be like building a new

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laptop computer with vacuum tubes. This country

has moved on, and these old ways simply cannot keep

up.

Now, presumably, this media exemption is

rooted in the notion of an intrinsic value of

trusted, objective and comprehensive information in

the hands of the citizenry, but unfortunately, when

we look at our traditional media today it is

neither trusted nor objective nor comprehensive. A

Pew study released just this week showed that the

percentage of people saying they can believe most

of what they read\--most of what they read\--in their

daily newspaper dropped from 84 percent in 1985 to

just 54 percent in 2004.

Worse yet, another study by Columbia

University this week showed that among journalists

themselves, 45 percent are less trusting of the

professional behavior of their own colleagues.

Just two years ago, only about a third had such

doubts.

And as far as the objectivity of the

established and bona fide press is concerned, we

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need not look very far to see a deep distrust of

this mainstream media. Organizations on both the

right and the left raise and spend millions of

dollars every year documenting examples of bias in

coverage when it comes to campaigns and elections.

Moreover, the popular established media in

this country is anything but comprehensive. Large

majorities of Americans believe that news

organizations are more concerned with gathering

large audiences than informing the public with

facts.

And time and time again, it is the new

media, these bloggers that fill the information

gap. The vast resources of the blogosphere as a

whole, its expertise, its creativity, its

motivation dwarf any newsroom in this country.

Indeed, free of the constraints of bureaucratic

hierarchies and concerns about column inches, blogs

can provide news coverage that is both faster and

more in depth than anything the mainstream media

can hope to provide.

Minutes, for example, after the reports of

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the tsunami that struck Southeast Asia, bloggers

were collecting, sharing and distribution firsthand

reports of the devastation, hosting sought after

documentary video footage and even lending help to

relief efforts. In a news cycle measured in tiny

increments, bloggers were hours ahead of their

mainstream counterparts.

In fact, this very rulemaking itself is a

great example and a better case in point. What

newspaper or television station could afford to

devote time and energy and space every day to

covering the actions with respect to a relatively

small government agency? None did and none could.

Meanwhile, bloggers wrote tens of thousands of

words about the Commission\'s rulemaking, invited

their readers to ask questions and become more

informed while educating them and encouraging them

to participate in the process helping to generate

the very 800-plus comments that the Commission has

praised so far this morning.

And there is no doubt that the Commission

recognizes the difficulty in extending this media

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exemption to these citizen journalists, but it is

imperative that it does so, for what goal will be

served by protecting Rush Limbaugh\'s multimillion-dollar

talk radio program but not a self-published

blogger with a fraction of the audience? How is

the public benefitted by allowing CNN to escape

regulation while spending corporate dollars to put

campaign employees on the airwaves as pundits while

forcing bloggers to scour the record and read

Commission advisory opinions?

Worse yet, if the Commission were to adopt

a policy of examining individual blogs on a case-by-case

basis, how is that to be distinguished from

a government license to publish free of jeopardy

only granted or denied after the fact?

The Commission should extend the media

exemption to bloggers and other online publishers

with the broadest possible terms, and the American

people, when given the chance to make choices, make

choices that best serve them. The more voices, the

more outlets, the more media entities, the more

informed our public and our voters will be.

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I thank you for your time and your

attention, and I look forward to answering any

questions Members of the Commission may have.

CHAIRMAN THOMAS: Thank you.

Mr. Morris, hello again.

MR. MORRIS: Nice to see you again.

CHAIRMAN THOMAS: Nice to share the podium

with both you and Mr. Krempasky, as you know, so

it\'s nice to get you back together.

MR. MORRIS: Thank you for having us,

Chairman Thomas and Members of the Commission.

Thank you for permitting the Center for Democracy

and Technology to testify today. I am John Morris,

staff counsel with CDT.

CDT is a nonprofit public interest

organization founded in 1994 to promote democratic

values and individual liberties in the digital age.

CDT works for practical, real world solutions that

enhance free expression, privacy and democratic

participation. We are guided by our vision of the

Internet as a uniquely open, global, decentralized

and user-controlled medium. We believe that the

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Internet has unprecedented potential to promote

democracy by placing telecommunications technology

in the hands of individuals and communities.

Specifically with regard to the goals of

the campaign finance laws, we believe that the

Internet has been and will continue to be an

overwhelmingly positive force. The Internet has

dramatically broadened the nation\'s political

conversation and has enabled tens of millions of

people to express their political views and receive

political information from a vast array of sources.

The political speech of individuals on the

Internet is, in simple terms, we believe, part of

the solution and not part of the problems addressed

by the campaign finance laws. We do not argue that

all political speech on the Internet should be free

from regulation. We readily acknowledge that the

Commission can regulate the Internet spending of

candidates, political parties and other core

targets of the campaign finance laws.

Our concern, however, is that in trying to

extend to the Internet rules that apply in the

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offline world, the rules threaten to chill the

remarkable explosion of online citizen

participation in the political process. In

reviewing the more than 700 comments filed with the

Commission in this rulemaking, it is striking that

those comments are almost unanimous on one point:

that the independent political speech of ordinary

individuals should not be burdened by the campaign

finance laws.

In comments ranging from those filed by

Senators McCain and Feingold and Congressmen Shays

and Meehan all the way to the most ardent

individual bloggers, the message is the same:

protect the speech of individuals. And that\'s the

same message found in the joint statement of

principles that CDT helped to file on behalf of

organizations such as the American Civil Liberties

Union, the Electronic Frontier Foundation, the

National Taxpayers Union, People for the American

Way and more than 1,000 other organizations,

bloggers, and individuals. And that goal of

protecting the online speech of individuals is one

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that the Commission itself endorsed in its Notice

of Proposed Rulemaking.

So the critical question before the

Commission is not whether to protect the speech of

individuals but how best to do it, and there is one

absolutely crucial answer to that question: keep

it simple. And although the NPRM strives to be

narrow in its impact, and we appreciate that narrow

aim, it does fail to articulate the simple

exemption of individuals\' online speech.

The Commission needs to break out of the

mold of existing campaign finance regulation, and

it needs to draft a short and easy to understand

statement protecting individual speech. If at the

end of the day, the Commission protects individuals

by drafting five more pages of regulation and

issuing a dozen new advisory opinions, then, an

opportunity to promote and protect democratic

discourse will have been lost, and valuable online

speech will have been chilled.

It is crucial that individual speakers be

able to determine that their speech is exempt from

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regulation without hiring an attorney and without

wading through the results of the case-by-case

application of a new set of complex regulations.

In our comments, CDT offers a number of approaches

to creating a clear and simple exclusion for

individuals\' online speech. First and most simply,

the Commission can reorient its rules to only apply

to candidates, political parties, and other core

targets of the law.

By focusing first on who is regulated and

not what speech is regulated, the Commission can

properly target its regulations at the problems

addressed by the campaign finance laws. There is

nothing in the Shays decision, we believe, that

requires the Commission to regulate the speech of

individuals.

Alternatively, the Commission could create

a significant monetary threshold below which

individuals\' online activities are wholly exempt

from regulation. What is critical, really, is that

the Commission must do something to make the

protection of individuals both unmistakably clear

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and readily accessible to the ordinary speaker.

Thank you again for the opportunity to

testify. We look forward to any questions, and we

welcome any opportunity to assist the Commission in

achieving the goal of protecting individuals\'

online speech.

CHAIRMAN THOMAS: Thank you.

Mr. Moulitsas Zuniga.

MR. MOULITSAS: It is a pleasure being

here to talk about the vital role Internet

communications have in our democracy. We have

before us the first truly democratic medium,

accessible to anyone with a computer and Internet

connection. And the mere fact that you are

deliberating on this issue and that I and several

other bloggers have been invited to testify is

proof that the medium has reached critical mass, a

point where we can no longer be ignored,

denigrated, or ridiculed. And considering where we

are as a medium, where we were as a medium a short

three years ago, that is quite startling to people

like me.

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Indeed, it is so hard for me to realize

that people take what I say seriously. I\'m just a

guy with a blog. That\'s been my mantra for the

past three years. When I started DailyKos, I had

no outside credentials that would lead someone to

want to read my work. But it is more and more

apparent that a guy with a blog means a lot more

today than it did when I first began blogging in

2002\.

There are a couple points I want to stress

in the few minutes I have allotted, and then, I

will be happy to answer any questions you may have.

But I want to provide a quick overview of the

political Internet.

It is really truly impossible for any one

person to grasp the scope of Internet communication

technologies. As I wrote these prepared remarks,

off the top of my head, I could think of the

following Internet communication technologies:

blogging, email, instant messaging, message boards,

Yahoo groups, Internet Relay Chat, chat groups,

podcasting, Internet radio, Flash animations, Web

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video, Webcams, peer-to-peer, and social networking

software. Then, there is Grokster, which has

obviously been in the news lately, which is kind of

the peer-to-peer stuff. And the new Apple

operating system has these little applications

called widgets which live on my desktop and get

automatically updated via the Web, so I get my

five-day weather forecast not from my browser but

from my widget, and Microsoft promises to do the

same.

All of these technologies have political

applications, obviously, yet they are vastly

different. In fact, the only element they all have

in common is that they use the Internet to connect

people from all reaches of the world. What those

people do with a connection is limitless, and

collectively, these communications technologies

have even less in common with the offline

communications that the law was designed to

regulate.

It isn\'t my position that the Government

should never regulate any Internet communication.

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It is my position that the Internet is so vastly

different than television, radio, and print media

that the current campaign finance regime does not

fit, and different techniques must be employed. It

would be like asking me to wear a suit that was

designed for an NFL offensive lineman: some

serious tailoring would be necessary.

\[Laughter.\]

MR. MOULITSAS: So how are Internet

technologies different than our offline media

counterparts? First of all, the barriers to entry

are ridiculously low. A computer and an Internet

connection can turn anyone into a publisher who can

speak to a mass audience. Every single one of the

communication technologies I mentioned above: the

blogging, podcasting, Yahoo Groups, et cetera, is

available for free. By comparison, it takes

millions to start or buy a newspaper or television

station, magazine or radio station.

And that low barrier to entry ensures that

anyone can communicate. It assures that

corporations or labor unions or wealthy individuals

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have no bigger say than people like me. I am a

former war refugee from El Salvador. I didn\'t

speak English when I came to this country. I never

had any friends in influential places. I wasn\'t

part of an old boys\' network. My father, who was a

Greek immigrant, loaded freight in a warehouse. My

mother was a Salvadoran immigrant who started off

as a secretary.

It is rare to see people like me, from

such modest backgrounds, become media stars, quote-unquote.

Yet, here is a medium that did not care

about things that didn\'t matter, like class,

wealth, influence, or social networks. I was able

to rise to where I am today precisely because of the

purely democratic nature of the Internet, and what

is more, me being at the top of the blogging world

doesn\'t mean others can\'t publish their own blogs

and some day displace me. It doesn\'t mean that

they can\'t podcast; it doesn\'t mean that they can\'t

create email distribution lists. The spectrum is

infinite. Anyone who wants a voice can have a

voice, and anyone who wants to listen to or read

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them can do so.

In print, in television, and in radio, the

average citizen can only get access if he or she

can buy that access or if the editors and

producers, the gatekeepers of the traditional

media, provide that access. Online, there are no

gatekeepers; everyone has a voice. What\'s more,

and this is problematic to those who would regulate

the medium excessively, the medium allows for true

anonymity, which, in my opinion, is the freest of

all free speech.

We have a democratic medium that allows

anyone to have true freedom of the press. We have

average citizens publishing their thoughts, their

research, their journalism, their activism and

encouraging others to do the same. Almost daily on

my site, readers exhort each other to engage in

some kind of political activity, whether it is

phone calls to particular Members of Congress,

discussions about pending legislation or

fundraising to help a favorite candidate.

This is what democracy should look like:

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an active, engaged, passionate community working

with likeminded individuals around the country and

even around the world to make the world a better

place. This is what campaign finance reform is

supposed to accomplish: placing individuals at the

center of our democratic communication, not large

campaign contributions.

Obviously, I don\'t agree with Mr.

Krempasky over here on nearly anything, but the

fact is that his site engages citizens, and I would

like nothing more than a Republican Party that was

less beholden to corporations and more beholden to

the rank and file of conservative citizens, and

that is what I want from my own party as well.

Those who believed that they could corrupt

the political process through the Internet had

every reason and incentive to do so in 2004 and

unlimited means at their disposal, but nothing of

the sort happened. The free market of ideas

policed itself, and it worked. So I ask you to do

the minimum necessary to comply with the court

order and go no further.

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Thank you for your time.

CHAIRMAN THOMAS: Thank you.

Larry Noble.

MR. NOBLE: Mr. Chairman, Mr. Vice-Chairman,

Members of the Commission, Mr. General

Counsel and staff, on behalf of the Center for

Responsive Politics, I am pleased to have this

opportunity to testify before the Federal Election

Commission on the rulemaking on Internet

communications. We have submitted detailed

comments. I have only a few brief opening remarks.

It is beyond debate that the Internet is

having a transformative impact on numerous aspects

of our lives, including how we conduct politics.

We know the Internet can be a market for commerce

and ideas, a public meeting place or a closed room,

a place for a few people to exchange ideas or a

tool of mass communication, a public square or a

dark alley, a bustling main boulevard or a seedy

back street, and I have visited them all.

It is a place for the vibrant exchange of

profound ideas as well as rants that make sidewalk

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graffiti look insightful. It is also something

that is evolving, changing as it changes the

society with which it connects. The very breadth

of the potential of the Internet, both positive and

negative, makes it a fascinating topic for a broad

discussion that could go off in a thousand

different directions.

Fortunately, much of that discussion is

beyond the FEC\'s expertise and mandate, and it is

not the topic of this rulemaking. Rather, here,

the FEC is dealing with a critical issue that is

within its mandate: how do certain aspects of the

Federal election campaign laws apply to money spent

for political communications on the Internet?

In fact, the issue the FEC must address,

if you accept the Shays opinion, is even narrower

than that. In its BCRA rulemaking, the FEC

exempted from the term public communications all

communications over the Internet. This means that

the rules barring the spending of unlimited soft

money for corporate or labor express advocacy fully

coordinated with a candidate would not apply to

35

Internet activity. Moreover, the Commission\'s

rules allowed state parties to use unlimited soft

money to fund generic campaign activities as well

as any type of state party communication that

supports or opposes Federal candidates as long as

it was done on the party\'s own Website.

It was these rules that were struck down

by the District Court and prompted the Court to say

to permit an entire class of political

communications to be completely unregulated,

irrespective of the level of coordination between

the communications publisher and a political party

or candidate, would permit an invasion of campaign

finance laws, thus unduly compromising the act\'s

purposes and creating the potential for gross

abuse.

However, the FEC\'s notice goes beyond the

definition of public communication as used in BCRA.

The NPRM proposes addressing issues that arise

under the Federal Election Campaign Act, issues

that the FEC has been dealing with for over 30

years, including exemptions from the definition of

36

contribution and expenditure for corporations and

labor unions, individual volunteer activity and the

exemption for the press.

While the Commission\'s desire to deal with

these issues is understandable, it is important to

keep in mind that these are broader FECA issues.

The question of how to incorporate the Internet

into these concepts predates BCRA, and your

answers, if not carefully constructed, will

undermine the long accepted compelling interest

behind the campaign finance laws.

Just as when you attempted to carve out a

broad exemption for the Internet under BCRA, I

don\'t believe that the FEC has the option of just

declaring that all money spent on Federal political

activity on the Internet is beyond regulation,

regardless of whether it is soft money spent by

Federal candidates, officeholders, corporations,

labor unions, or political parties. Likewise, the

exemptions for individual volunteer activities and

the press cannot be defined so broadly as to make

the law from which they arise meaningless.

37

Having said that, let me say also that I

do believe that the FEC can provide individuals

with the breathing room they seek to write, debate,

advocate, blog, and get together communities of

political interest without the need to consult

lawyers or seek FEC advisory opinions. The fact

that the campaign finance law deals with the

spending of money already limits its application to

the Internet, where much of what takes place

happens at little or no direct cost.

Moreover, defining public communication as

it applies to individuals to only cover buying

advertising on someone else\'s Website, as the

Commission has proposed, leaves most activity a

person undertakes on their own Website untouched.

The individual volunteer exemption as applied to an

individual\'s activity on his or her Website

provides another umbrella that will shield a vast

majority of that activity from regulation,

especially if the FEC decides that this exemption

encompasses bloggers who incorporate for liability

purposes or take paid ads for their own Websites.

38

And in other cases, the press exemption will afford

the protection sought.

If the FEC proceeds carefully, looking at

all the interests concerned, it can avoid being an

obstacle to the development of the Web as a

powerful democratizing force while ensuring that it

does not open up a new loophole allowing the

spending of unlimited corporate and labor soft

money in coordination with candidates and parties

to influence Federal elections.

I want to thank you for the opportunity to

testify, and I will be glad to answer or try to

answer any questions you have.

CHAIRMAN THOMAS: Thank you.

Well, I am going to lead off with the

first panel here, and we are going to rotate in

terms of who goes first on the various panels, but

I will start.

I am going to sort of play at the angle

that Mr. Noble has just brought to our attention,

and I just want to bring to the discussion a little

quick research that my staff did. Evidence shows

39

that the use of the Internet to influence elections

is growing, and though most citizens\' use of the

Internet involves little expense, there are groups

out there that are raising and spending huge sums

for Internet communication. A quick search of the

FEC database shows about \$25 million on Schedule B

disbursement schedules described with terms like

Web, Internet, and email. That does not include

Senate filings that are not electronic or state

party disbursements that appear on other

disbursement schedules, like the allocation

schedule.

We also did a quick search of the IRS

filings of 527 groups that do not report to the

FEC. We found among just eight 527 groups outlays

of over \$2.2 million for these types of expenses.

Progress For America Voter Fund showed about

\$900,000 for email list services, over \$158,000 for

Website services and over \$213,000 for Internet

banner ads. Swift Boat Veterans showed a total of

over \$320,000 in similar categories. The November

Fund showed a total of over \$512,000 in these

40

areas. I will provide the documents that show this

research for the record.

To me, as important as it is that we leave

average citizens using the Internet alone, it is

just as important that we not craft a rule that

leaves political groups free to raise and spend

soft money to influence Federal elections. The

coordinated communication rules are designed to

bring coordinated political messages within the

contribution limits.

The Commission\'s proposed rule would make

paid ads placed on someone else\'s Website subject

to the coordination rules but would leave other

types of Internet communications outside these

rules. Thus, a 527 could fully coordinate with a

candidate in the creation, production and list

purchase regarding an email with a polished video

clip ad attached that is sent to millions at, say,

a cost of \$100,000.

My question is\--any one of you can jump in

however you want to\--assuming we find ways to

exempt virtually all activity by individuals using

41

the Internet, are we nonetheless failing to cover

some types of Internet activity in our coordination

rules that ought to be covered?

MR. NOBLE: I\'ll start. Yes.

\[Laughter.\]

MR. NOBLE: Any other questions?

I think Chairman Thomas has hit the nail

on the head. I think that the Internet is a great

leveling force, and it really does present the

opportunity for individuals to express themselves

at low or not cost. But it also, as we are seeing

and as it grows more sophisticated and as political

parties, 527s, and candidates have slowly woken up

to the power of the Internet, it is also becoming

an avenue for expenditures of large corporate and

labor money done in coordination with candidates.

And that\'s why we think, for example, that

when you\'re dealing with the question of

individuals being able to put anything they want on

their own Website, I think we have to have a

different rule when you\'re dealing with political

parties, political committees, and corporations and

42

labor unions when done in coordination with

candidates.

I think that you are dealing with a very

different realm there. You are, by the way,

dealing with people who already do have lawyers,

for the most part; who are aware of the Federal

Election Campaign Act, but more importantly, you

are dealing with a real avenue for abuse, a real

avenue for the old soft money to get back into the

process.

And in fact, one of, I think, the ironies

in this whole discussion is that the more important

the Internet becomes in terms of an element of mass

communication or as part of mass communication, the

more it will attract those large contributions. It

will attract those large expenditures of money

aimed at influencing elections.

So, yes, it does open up the avenue for

people who don\'t have a lot of money, and it is a

great avenue of mass communication for that. But

at the same time, it does present that other avenue

for those who have now hopefully been closed off

43

from using soft money in the offline world.

MR. MOULITSAS: I will go quickly.

Corporate America has spent a lot more money than

that trying to influence consumer behavior on the

Internet, and what they\'ve found is that you can\'t

really influence consumer behavior. The opposite

is happening. Consumers are influencing corporate

behavior via the Internet, and a lot of that is

personalization; a lot of it pressure on business

practices, things like that.

So when there is a point where this money

is actually drowning out citizen voices, that is

where I would start to worry. That is

definitely not happening, because even though you

mention those examples, fact is that independent

bloggers and independent Websites had a lot more

influence, I think, on the election than a lot of

those efforts did.

MR. MORRIS: I would just add that CDT, as

I indicated, would not argue that you should turn a

blind eye to someone spending \$900,000 on Internet

communications. But the current rules do create

44

some risks for three college kids who decide to

spend \$1,100 for Internet communications.

And so, I hope that you will be able to

draw a line that is clear enough but also

essentially high enough that you are able to

address the types of expenditures that Chairman

Thomas just mentioned without threatening what

really is a vast potential, potential that we don\'t

simply yet even know how people will spend \$1,000

in five years on the Internet.

And I suspect that in five years, we will

think that they ought to be able to spend that

\$1,000 without too much great concern.

CHAIRMAN THOMAS: Thanks. I have gone

over my time limit, so if you can make it short\--

MR. KREMPASKY: I would just say two

things: one, I think \$25 million in the billions

of dollars we spend in political campaigns in a

cycle is minuscule. I would wager that campaigns

spent a rough equivalent in their electricity bill

and catering and takeout for their volunteers

nationwide.

45

But secondly, I think that the bigger

problem is that if you start regulating, for

instance, and you bring up video production and

distribution, I think you have an equal concern

when you have professional people that donate those

services at fair market value, and you need to

start putting price tags on that as far as

contributions and expenditures. Folks on Markos\'

site can produce the same quality of things for no

cost at all.

CHAIRMAN THOMAS: Thank you.

I\'ll move on to Vice-Chairman Toner.

VICE-CHAIRMAN TONER: Thank you, Mr.

Chairman.

Mr. Noble, I\'d like to begin with you.

The Notice of Proposed Rulemaking had a proposed

exemption for individual activity for a wide

variety of Internet activities: emails, links,

forwards, putting up Websites and the like. And my

first question is are you comfortable with that, a

total exemption for this grassroots individual

activity, even if it costs some money to do some of

46

those activities and even if it is coordinated with

a candidate?

MR. NOBLE: I am comfortable with a very

broad exemption that allows an individual, a group

of college students, to do Internet activity, to

have a Website up. We do think that the FEC may

have gone too far in its proposal in some respects.

I mean, I think there is an issue out there when

you are dealing with large production costs that go

into what you\'re going to put on the Internet, into

an ad, that there are some issues there; you might

want to have a threshold, a high threshold for

that, but there are some issues there.

I also think that there are some

questions, there are some valid questions of when

you become a political committee. But I don\'t

think a group of students getting together and

spending a couple of thousand bucks on the Internet

makes them a political committee.

So I think there has to be some

limitations, but I think generally, what we have

suggested are a set of rules that will leave the

47

vast majority of the individuals on the Internet

not only out of the rules but not having to worry

about them.

I think one thing that tends to be

forgotten in this is that the Internet is new in a

lot of ways, but also, it is just also a

repackaging of some old problems. For example,

people put up yard signs all the time. People go

door to door all the time. They may not be aware

of how the Federal election rules affect what

they\'re doing, but they go ahead and do it, and I

think the Internet world will end up being that

way, too, is that the vast majority of people won\'t

even be aware of what\'s going on and won\'t have to

be concerned about it.

But just a blanket exemption for

everything, I think, goes too far. I think you

can, as I say, have an exemption that covers most

everything but is going to deal with the outer

parameters of that where it does become a problem.

VICE-CHAIRMAN TONER: And the NPRM also

had a proposal regarding work-owned computers,

48

corporate-owned, labor-owned computers, and the

current safe harbor regulations allow, you\'ve got

to be a pretty quick campaign volunteer, one hour

per week, four hours per month.

My question to you is would you be

comfortable with the FEC concluding that

individuals can use work-owned computers on an

unlimited basis as long as they\'re doing it on

their own time, and it\'s self-directed, it\'s their

decision to go ahead and do that? Would you be

comfortable with that?

MR. NOBLE: Yes, in most respects, yes,

yes. You know, for one thing, for one thing, the

safe harbor that is now in the regulations is just

that. It\'s a safe harbor. The FEC hasn\'t said

anything beyond that would automatically be

prohibited. But I do think, and I have to say my

thinking has evolved on this, I do think given the

Internet, given the very valid points made about

how everybody uses the Internet from work\--don\'t

tell your employers that\--how university professors

are given their computers, how a lot of people are

49

given computers by their employers to take home

with them, and those are the only computers they

have, I do think that does require an

accommodation.

So I am not bothered by moving away from

that rule. I think you raise two good points: one

is that it can\'t be directed by the corporation.

And two is that if, in fact, the corporation does

shut you down from all other private activity on

the Internet, which I know some people that their

corporations are starting to do that, then, there

is a question of what happens if they let you blog

for one candidate.

But putting that aside, yes, I am not

bothered by it.

VICE-CHAIRMAN TONER: And so, if it were

self directed, it was the person\'s decision to go

ahead and do online politics on a work machine, and

if it was on his or her own time, you would be

comfortable with allowing that on an unlimited

basis?

MR. NOBLE: Yes, if that is what the

50

corporation\'s policy generally is about the use of

the Internet.

VICE-CHAIRMAN TONER: Mr. Krempasky, you

say at page 10 of your comments, you make the

following statement regarding the media exemption,

and you discussed this in your opening comments. I

mean, you say simply put, we do not think a

government commission should be deciding case-by-case

whether an individual or group\'s online

journalism is conventional enough to deserve

protection within the press exemption. That power

invites abuse and censorship, you write.

Could you elaborate on your concerns

there?

MR. KREMPASKY: Well, I think so. My

understanding is that the FEC primarily

investigates based on complaints. They don\'t

generally open investigations out of whole cloth.

So if you have people self-publishing on the

Internet, if there aren\'t the clear rules that John

talked about in his opening remarks, then the only

way the FEC can possibly evaluate them is after the

51

fact. And if we\'re talking about something that

happens after the fact, that this Website is

appropriate or this isn\'t, that seems to me to look

a lot like a license to publish, because the only,

it seems, terms they can evaluate is the content.

VICE-CHAIRMAN TONER: Are you comfortable

with the Commission creating a categorical

exemption for bloggers on the theory that, within

the statutory meaning of periodical publication and

that they are a periodical publication and that

they are serving in today\'s society as press

entities?

MR. KREMPASKY: I am.

VICE-CHAIRMAN TONER: Mr. Morris, do you

concur with that? I\'m sorry. Mr. Zuniga \[sic\]?

MR. MOULITSAS: I just want to make a

quick point.

VICE-CHAIRMAN TONER: Please.

MR. MOULITSAS: A lot of this is focused

on blogging, and I think that is a mistake, because

Internet communication technologies are much

broader, and blogging is a big thing right now.

52

It\'s hot and trendy and whatever. But we\'ve got

podcasting that\'s coming on strong, and who knows

what\'s going to be coming in a couple of years? So

I think it needs to be broader than just bloggers.

VICE-CHAIRMAN TONER: I am just excited to

get an Ipod. My wife tells me that that may happen

sometime this year and\--

\[Laughter.\]

VICE-CHAIRMAN TONER: \--I\'m really excited

about it.

Mr. Morris? I\'m sorry; I didn\'t mean\--

MR. MORRIS: I frankly\--what Markos just

said is what I was going to say. I certainly

support protecting bloggers. I would be very

concerned about a regulation specifically focused

on blogging, because, frankly, I mean, who knows

what that is? Is that a specific piece of

software? You know, are discussion lists that

don\'t use something called blogging, do they

qualify, or do they not qualify? So I would

encourage the Commission to avoid identifying a

specific technology. In a laundry list of

53

examples, perhaps, you know, you can certainly say

blogging among other discussion forums or methods,

but don\'t carve out blogging just for special

protection.

VICE-CHAIRMAN TONER: Thank you.

CHAIRMAN THOMAS: Thank you.

Commissioner Weintraub.

COMMISSIONER WEINTRAUB: Thank you.

I\'d like to follow up on that, because

everybody\--I think everybody on this panel and

everybody on that panel agrees that we don\'t want

to regulate bloggers. Okay; we are all agreed

about that, but there seems to be some diversity of

viewpoint as to what\'s the best way not to regulate

bloggers. Some people say we should put in a

specific exemption, and as Mr. Morris just pointed

out, others have pointed out that it\'s not

something that we should focus on specifically,

because, you know, next week, there will be a new

technology that people are using.

So I open it to the panel: what is the

best way for us not to regulate bloggers?

54

MR. KREMPASKY: Well, I am of the position

that the media exemption should be extended

broadly, and not focused on who; I don\'t think the

question really is who is a journalist; I think the

question is what do journalists do? And if you can

identify what do journalists do, whether it\'s

carrying this news, commentary, or editorial

content to people, to a mass audience on a regular

basis, I don\'t see any reason why those folks don\'t

deserve the same protection that Rush Limbaugh and

CNN enjoy.

MR. MORRIS: I would somewhat agree with

the approach that Mike has of applying the media

exemption to all bloggers. I personally believe

that there are some blogs out there that just don\'t

feel like they\'re trying to be media. They\'re not

trying to\--

COMMISSIONER WEINTRAUB: Pets blog.

MR. MORRIS: Pets blog, but there are also

blogs out there, you know, organized and run by a

political campaign, aimed at the supporters of the

campaign, and it is an internal vehicle for

55

communication. And still, that\'s also a blog. So,

I mean, I would suggest that while I absolutely

agree that there are very many blogs out there that

should be treated as media, I would suggest that a

cleaner approach would be to find a way to exempt

individuals more generally. I think that would end

up protecting the vast majority of blogs, and then,

you don\'t have to get into the fine case-by-case

analysis as to whether this blog is protected or

not, because it\'s protected under an individual

advocacy exemption or some other approach.

MR. MOULITSAS: Yes; I don\'t have

encyclopedic knowledge of campaign finance law. I

don\'t know if anybody really does.

COMMISSIONER WEINTRAUB: I\'m not sure I

do, either.

MR. MOULITSAS: But I know there is a

test, whether something is owned by a campaign or

whether somebody is hired, if they have a

substantial budget, if they can hire, fire people,

et cetera.

When it comes to campaigns and political

56

action committees and affiliated types of

organizations, I don\'t think anybody is opposed to

that, generally speaking, kind of saying you\'ve got

to follow the same rules you have got to follow in

other areas of doing your operations. But, you

know, I\'m a corporation. I\'m incorporated. Every

month now, somebody threatens to sue me. I\'m at

the point where, you know, it\'s a fact of life.

COMMISSIONER WEINTRAUB: Not Mr.

Krempasky, I hope.

MR. MOULITSAS: No, no, no.

\[Laughter.\]

COMMISSIONER MCDONALD: They sue us every

month. Don\'t worry about it.

\[Laughter.\]

MR. MOULITSAS: So, you know, the

corporation, when you start talking about

corporations, that makes me nervous. When you talk

about groups, you know, political action

committees, a certain number of people that are

working together, that gets me nervous.

My site has over 50,000 people registered

57

who are writing content; you know, we\'re a pretty

big group. So that\'s the sort of thing that really

starts getting me nervous. And to me, a broad

media exemption, I think, really would apply for

things that are not directly affiliated or funded

by or controlled by politicians and campaigns,

political action committees, that sort of thing.

COMMISSIONER WEINTRAUB: But as you know,

and I\'ll get to you, Mr. Noble, but as you know,

this issue of whether bloggers receive any kind of

payments beyond formal advertising has become

somewhat controversial. Does that somehow take a

blogger out of the media? Or, to look at another

angle on that, what about a campaign worker? Do

they not\--somebody who works on a campaign for a

political party on their own time, are they not

entitled to blog, too?

MR. MOULITSAS: Absolutely. And in most

of those cases, campaigns don\'t have control. I

consulted with the Howard Dean campaign. I helped

them with their message boards, kind of technical

consultant kind of stuff. They never controlled

58

the content on my site, and there was never any

intent to control the content on my site, and they

wouldn\'t have been able to, and it was freely

disclosed on my site.

I think that, again, if they control the

content\--are they exercising editorial control?

Are they able to hire, fire whoever is blogging on

that site? Other than that\--

COMMISSIONER WEINTRAUB: Is that a fact-based

determination? I mean, if somebody

complained about that, would we have to investigate

you?

MR. MOULITSAS: I think the media

exemption applies. I mean, you have people like

Paul Begala and James Carville who were on

Crossfire. They\'re just supposed to be

journalists. Yet, they were consulting with the

Kerry campaign. I mean, we have a media

environment today, and people may have this fiction

that it\'s impartial, and they\'re out for the truth.

That\'s kind of the very quaint notion of

what the media has become. I mean, it\'s rife with

59

conflicts of interest, and it has been for a long

time now. People like Charles Krauthammer on his

New York Times column put the address of the RNC to

fundraise for the Republican National Committee,

and I don\'t see a problem with that. And I don\'t

think that means he\'s any less able to enjoy the

media exemption that\'s provided by the FEC, and I

think that that really applies. I mean, my ability

to share my expertise with a political campaign

should not abridge my free speech rights to talk

about the political issues that face this country

today.

COMMISSIONER WEINTRAUB: I\'m out of time,

Mr. Chairman, but I would sort of like to give Mr.

Noble a shot at it. I feel like I discriminated

against him there.

CHAIRMAN THOMAS: Ten seconds.

\[Laughter.\]

MR. NOBLE: I actually very much agree

with John Morris. I think\--first of all, I don\'t

agree that all bloggers should be out, but I also

don\'t believe you should define any exemption just

60

in terms of bloggers. I mean, it has to be

broader, and as said, it can be part of a list.

One place I do disagree with much of what

has been said is about the media exemption. And I

know the media exemption for 30 years has been a

problem. It is in the law. The Supreme Court has,

as recently as two years ago in the McConnell case,

embraced the media exemption and talked about\--I\'m

going to say this in mute voice so I don\'t get hit

by the people to my right, talk about the

institutional press.

And I understand that there is this

difficulty in embracing what is the institutional

press, and the Supreme Court and other courts have

been willing to say what is not the institutional

press; for example, in MCFL, they said something

was not entitled to the media exemption but has

notably been unwilling to really define what the

institutional press is.

That doesn\'t mean you can\'t avoid the

problem. I think that there is a concept of the

institutional press. I think some bloggers would

61

probably very easily come under the concept of

press. I think other bloggers may not. I think

the way to approach this issue is you start with

the easiest questions: is there any money spent?

Then, you look at the individual volunteer

exemption. I think the individual volunteer

exemption can be constructed in such a way that it

will take in most.

If you don\'t have the individual volunteer

exemption, and you are having money spent, then,

you may have to get to the press exemption. And as

the Commission has done it in the past, you\'re

going to have to deal with it on a case-by-case

basis. There is still this concept of

institutional press, and by the way, I would note

that the concept of press goes beyond FECA, goes

beyond BCRA. It is an issue that exists in a lot

of other areas of law, and I think there is going

to be a real struggle in the future about what is

the press because of what the Internet has brought

to the table, but I don\'t think you can avoid the

issue, and I don\'t think you can just make

62

everybody the press.

CHAIRMAN THOMAS: Thank you.

Commissioner Mason.

COMMISSIONER MASON: I want to first off

start with Mr. Moulitsas, because in your

testimony, you talked about this issue of paid

content, and in dealing with broadcast advertising,

for instance, the Commission says, well,

advertisements, 30-second ads and so on are

covered, and so are infomercials, so if Ross Perot

buys an hour of time, half an hour of time to do

his deficit reduction plan, that is an ad just like

the 30-second spot is.

And you have some testimony that seems to

suggest that it may be okay to cover ads, popups or

down the side, whatever, banners, but that we

shouldn\'t cover payments to an Internet publication

for content, and I wanted to understand how you\'re

making that distinction and just where you, you

know, what line you\'re suggesting we draw, because,

and I should also say in the print world, there are

also certain publications which allow people to pay

63

for things that look very much like editorial

content, and so, what is the distinction you\'re

trying to make?

MR. MOULITSAS: There is none. That\'s not

what I was trying to say. There is no distinction.

If it was up to me, the original rule would be in

place with the entire Internet exempted, so I don\'t

think\--I don\'t want any regulation.

But on the issue of advertising, my issue

is that if you are a citizen, and you want to

participate in the political process, and you want

to get your views out to the public using a mass

medium, you have to buy it, or you have to get

through the gatekeepers. Now, that is no longer

the case. Anybody can speak to the people.

Now, if I\'m labor union X, and I want to

put \$1 million into television, there is a finite

number of spectrum and a finite number of

advertising space available. So they drown out

other voices.

COMMISSIONER MASON: Let me interrupt you,

because I agree with you about that.

64

MR. MOULITSAS: Yes.

COMMISSIONER MASON: As I read your

testimony, you were saying when Daily Kos receives

a payment for a banner ad or some kind of an ad

that okay, whoever is making that payment, if it is

an express advocacy type of ad may well have to be

subject to our various rules.

MR. MOULITSAS: Well, yes.

COMMISSIONER MASON: I know that is not

your choice, but you seem to be\--

MR. MOULITSAS: Yes.

COMMISSIONER MASON: \--sort of conceding

that, well, okay, maybe that\'s going to happen.

But you seem to be arguing that if we go that far,

we ought to distinguish from a payment made to your

publication for editorial comment. I\'m trying to

understand if you are indeed suggesting that

distinction, and if so, what the basis is.

MR. MOULITSAS: I think there are just

lots of bloggers who do other things on the side.

They may be lawyers. You know, very few people

actually do this full-time. And there are people

65

like me and other bloggers who have particular

expertise in building communities online. And

that\'s a skill that some people want.

So I may consult\--I don\'t do it right now\--but I

may in the future decide I like this

Presidential candidate; I want to help this person

out, and I want to help them build their online

outreach. That has nothing to do with the content

on the site. That has to do with me sharing my

particular area of expertise, my skill sets and

helping somebody else out. And of course, you

know, that campaign already has to disclose that

sort of payment anyway. That\'s part of the

process. That has nothing to do, really, with the

fact that I run the blog or not.

Now, if they came in and said we\'ll give

you \$1,000 to run this article, I mean, obviously,

that would be a lot more problematic. Now, the

problem with that sort of thing, of course, is that

I don\'t have the sort of lock on the market, so to

speak, that, say, a newspaper or a television

station does, right? My credibility is the only

66

thing that keeps people coming back to Daily Kos.

So if my credibility suffers, then, I lose traffic,

and I lose my ability to influence the political

debate.

So that, I think, is the key, really,

factor that keeps me acting ethically and to

disclose any sort of conflict that may arise. But

to me, that\'s an issue of ethics. It\'s an issue of

morality. I\'m not sure that it\'s government\'s

place to really regulate that sort of thing. I\'m

not into government regulating ethics and morality.

COMMISSIONER MASON: Let me ask, I think,

Mr. Krempasky, or Mr. Morris maybe have most

directed attention to this. The media exemption,

as it exists in the FECA, addresses, interestingly,

the facilities of a broadcasting station,

newspaper, or other periodical publication. And I

am sort of puzzled as to what the facilities may

represent in an Internet context, and to put it the

most broadly, why we wouldn\'t consider the Internet

itself to be a media facility which would then

allow us to allow any content on the Internet to be

67

covered by the media exemption?

MR. KREMPASKY: Well, I think that when

you talk about facilities, clearly, there are

things that parallel our offline counterparts.

Where they have printing presses, we\'ve got

laptops. Where they have telephone lines, we have

wireless networks. Where they have desks, we have

Starbucks.

\[Laughter.\]

MR. KREMPASKY: And so, I think that

things that enable us to publish and distribute our

message are clearly facilities, especially when it

is in terms of ownership; you know, if we are

paying for a connection; if we\'re paying for

software that enables this. I think those exist

very clearly offline as well as on.

And I just wanted to add to something I

said earlier when I said that I was comfortable

with a broad media exemption, it is my

understanding that the media exemption really only

applies in an environment where a political

committee or otherwise regulated entity does not

68

actually control the media outlet. So, for

example, RedState, which is a political committee,

we are not accruing any advantage here, because we

clearly would not be eligible for this sort of

exemption, and I\'m quite comfortable with that.

CHAIRMAN THOMAS: Commissioner McDonald.

COMMISSIONER MCDONALD: Excuse me; thank

you, Mr. Chairman. My apologies for stepping out

of the room. I will be stepping out occasionally

because my sinuses are just about to do me in.

I thank all of you for being here this

morning. It is an interesting topic. I\'ve already

had a brief conversation with Michael to try to

explain to him that I have been trying to bone up

before he appeared here today. John, Markos,

Larry, of course, it\'s always great to see you as

well.

Let me just ask a couple of questions: I

do think that one of the comments that Commissioner

Weintraub made was correct. I think that without

hesitation, all of us are in the posture of not

wanting to curtail individual activity. But I do

69

think that the comments made by Larry Noble are

important to try to kind of focus this a little bit

more on what is at issue here, and Commissioner

Weintraub alluded to one of the problems and that

is in relationship to if someone is receiving

payment, maybe a large payment for these activities

to promote candidates or a party or whatever it may

be.

I think Michael commented earlier that \$25

million wouldn\'t cover the overhead, maybe, of

various campaigns around the country. He may be

right. I don\'t think I know the answer to that.

But let me just follow up on that if I could for

just a second, and then, I will start with Michael,

if I may. Would you think that there is, going

back to an earlier discussion, and I know they were

in John\'s comments as well as, I think, yours: is

there a level of money that might be spent that

would trigger a concern on your part?

MR. KREMPASKY: And this would be a level

of money not otherwise regulated by the FEC\--

COMMISSIONER MCDONALD: Right.

70

MR. KREMPASKY: \--through disclosure or\--

COMMISSIONER MCDONALD: Right.

MR. KREMPASKY: So what source of the

money are you describing?

COMMISSIONER MCDONALD: Well, let\'s take

the most fundamental problem we have in

relationship to a political campaign. Let\'s make

it a candidate campaign, in connection with a

candidate campaign, in coordination, as the

Chairman outlined in his opening statement. Do you

see a problem with that under any circumstances?

MR. KREMPASKY: Well, I don\'t know that I

argued that campaigns ought to be exempt from this.

COMMISSIONER MCDONALD: I appreciate that.

But what\'s your thought on it?

MR. KREMPASKY: Well, I think the thought,

fundamentally, is that the rules that govern how we

look at money and influence and impact and even

audience offline simply don\'t apply online. I

mean, I could argue, I think, and make a pretty

good case that in late September, if Viacom had

spent \$20 million defending Dan Rather by buying

71

advertising, it wouldn\'t have mattered a bit,

because the balance against this broad coalition

and groups of just independent voices drown out the

spending of money.

So I am less inclined to be worried about

these imposing sums of money, simply because I see

every day the power of these voices to dwarf them

anyway.

COMMISSIONER MCDONALD: Well, let me

follow that up, then, because it is\--all of you

raise very interesting and worthwhile points. On

that, for example, we know that General Motors has

spent a ton of money trying to revive the car

industry, and they haven\'t had particularly much

luck of late, apparently, according to the news.

So I guess the question gets to be not so

much whether there is a success level. If

everything is measured by success, then, there are

lots of projects in this world that tons of money

are spent on that don\'t turn out to be very

successful.

So then, I think, the question really gets

72

to be not that; I mean, it was said earlier, I

think Markos said this, that one minute, he was

saying, and I agree with him, that bloggers have

great impact, and the next minute, he was saying

that they really just follow the people and not the

other way around. And that very well may be true.

I don\'t claim to know the answer to that.

But it strikes me that the fundamental

question is not ultimately the bottom line success.

That\'s true in campaign finance law. In general,

there are millions and millions of dollars spent on

campaigns where candidates lose. So if the theory

was under that, if you lose, you must not be

effective, there would be a lot less regulation in

the world.

So I guess what I\'m trying to understand

is what the thought process is in regard to that,

because I don\'t think it has to be measured by

whether you\'re successful or not. I think it has

to be measured by what type of impact you are

trying to make on the process. And any of you, I

would be delighted to hear from any of you on that.

73

MR. MOULITSAS: I think the lack of

success so far really in lots of ways cautions

against regulating, because it hasn\'t become a

problem. If it becomes a problem, then, by all

means, revisit the issue and convene another panel

of this sort. But I don\'t think that a lot of

these fears that some of the reform groups are

saying that they\'ll produce really slick ads and

video and then email it to people.

If that was so effective, it would have

happened. And it hasn\'t happened. And let\'s wait

to see if it happens. And at that point, we will

decide if it\'s a problem or if it\'s not a problem,

and right now, I don\'t see it as a problem, because

quite frankly, we can drown out by sheer numbers

any amount of money they can throw into the system.

COMMISSIONER MCDONALD: Except that as you

pointed out, and I guess every member has pointed

out, we don\'t know where this is going, and\--

MR. MOULITSAS: Which is why\--

COMMISSIONER MCDONALD: \--but you were

telling us how successful it was, and politicians

74

by nature go where there is success.

MR. MOULITSAS: The success of what the

blogs are doing and the success of a lot of these

other technologies is not the amount of money

that\'s being thrown at it. It\'s the aggregating of

human beings into networks that are commonly

working towards a single purpose, whether it\'s

promoting a rock band; whether it\'s talking about

their favorite breed of dog; whether it\'s politics.

So that\'s where the success comes from.

It\'s not a money issue. And so, it\'s not something

you can buy. I mean, I think that is one of the

things that people worry about: you will buy these

groups of people. You cannot buy them. They form

over time, and it can\'t be fake. I mean, Mazda

tried to run a blog and pretend that it wasn\'t

theirs, right? And when it came out that,

actually, Mazda was behind it, the response was

brutal. I mean, it killed Mazda.

So it\'s got to be genuine. And that\'s

key: it cannot be bought.

COMMISSIONER MCDONALD: I appreciate it

75

very much. I thank you all for coming.

CHAIRMAN THOMAS: You will get more

question time when we come around the next time.

Commissioner Smith.

COMMISSIONER SMITH: Thank you, Mr.

Chairman. I want to thank all of you for coming.

It\'s fun to have a hearing like this, too, where we

see folks other than the usual faces. We see this

very small group of people who normally appear

before us.

Mr. Moulitsas, I look at you, and you look

like you\'re out of central casting. We need a

young Federalist Society lawyer. I can\'t believe

you\'re the scourge of the Republican Party.

\[Laughter.\]

COMMISSIONER MCDONALD: I\'m liking you

better already!

\[Laughter.\]

MR. MOULITSAS: I don\'t usually dress like

this.

\[Laughter.\]

COMMISSIONER SMITH: I hope you will take

76

that in good humor.

It\'s been commented a couple of times that

nobody here wants to regulate blogs, and, you know,

I think that\'s probably largely true. I do think

we\'ve used blogs as sometimes a shorthand for a

variety of the technologies that you noted. But

again, I have to note that in the lawsuit that

requires us to begin this rulemaking, the

plaintiffs there, the sponsors of the McCain-Feingold,

Shays-Meehan bills, cited approvingly

references to the Internet exemption as a poison

pill, a loophole, a step backwards, antireform, the

new or the favorite conduit for special interests

to fund soft money and stealth issue ads into

Federal campaigns.

I think there are people who are sort of

hostile to this, and it doesn\'t really matter in

the end whether we want to or not regulate certain

types of activity. The law has certain words in

the statute that have meaning and that force us to

do things once we go in that direction.

Republication of campaign material meets

77

the content standard for coordination. So somebody

who republishes something on a Weblog has gone a

long way toward coordinating their activity with a

campaign, which would create problems. Links, and

we have, and I note Mr. Noble has said a couple of

times, and I hope we\'ll have a second to do this,

but if we don\'t, I\'ll do it with one of your co-signers to

your written testimony, have noted that,

well, with no money spent, it\'s not an issue.

But as you well know, at the Commission,

we often, in fact, value activity not based on the

money spent but on the alleged or perceived value

to the candidate, so that if a corporation spends

\$20 to help somebody raise money, and the candidate

raises \$30,000 as a result, we don\'t value the

corporate contribution at \$20; we value it at

\$30,000.

So if a site like Daily Kos spends, you

know, a few cents to put up some kind of link that

pops up and helps people make donations, and they

raise \$1 million or whatever because of it, that

would be very problematic if we stick to that line

78

of ruling.

And similarly, political committees, a

political committee is defined by the statute as a

group of persons which receives contributions

aggregating in excess of \$1,000 or which makes

expenditures aggregating in excess of \$1,000. And

at least one of my colleagues believes that applies

to anything intended to influence the elections,

Federal or not.

So with that background, one of the many

questions I have really is the cost issue. We\'ve

talked about how little it costs, and then, at the

same time, people can start spending some money on

this. Mr. Morris, you\'ve attached to your

testimony a questionnaire, the informal survey that

you did with IPDI, and I note that it\'s not a

statistically valid survey but it\'s kind of an

online survey of what people are doing.

And you note that the average response to

run a personal Website or blog is about \$150; it

can be less. People with a private Web server can

get up to \$1,000 a year. I\'m curious from the

79

three of you, sort of from the tech community, I

guess I will say, what can people spend doing this

kind of activity?

MR. KREMPASKY: Well, I think the more

significant question is how do you actually

determine what you\'re going to spend? And I think

that the point you raise is a valid one: there is

a range of prices, and people are more competent

shoppers for the services they need. Clearly,

Markos needs a lot more technology than 95 percent

of the other sites on the Internet.

But I think that the more interesting

question is that in many cases, when you have a

blog, and you are producing content, the bill you

get at the end of the month or the end of the

quarter which, in some cases, may be after an

election, you may not actually have any control

over. If I was a lucky, enterprising blogger who

found an old piece of news footage of President

Bush making an obscene gesture when he thought the

camera was off, and I put that on my blog, and Matt

Drudge and Markos all find it and point to it, I\'m

80

going to get a bandwidth bill for thousands of

dollars after the fact. So once we start getting

into this regulatory arena, these are the kinds of

questions that scare me a lot more.

COMMISSIONER SMITH: Well, Mr. Kos\--Mr.

Moulitsas, I\'m sorry. What is it costing your site

to run\--just a ballpark figure.

MR. MOULITSAS: Yes, right now\--

COMMISSIONER SMITH: Is it over \$1,000

that you actually spend?

MR. MOULITSAS: I\'m probably going to

spend about \$150,000 on the site this year.

COMMISSIONER SMITH: So it\'s over \$1,000

for your individual activity.

MR. MOULITSAS: Slightly.

COMMISSIONER SMITH: And people could do

that and be a lot less. I mean, you\'re really big.

MR. MOULITSAS: Of course.

COMMISSIONER SMITH: Okay.

MR. MORRIS: Just to be clear, one can

start a blog, and, you know, if you\'re using your

company\'s computer and perhaps even your company\'s

81

bandwidth, you can start a blog for absolutely

zero.

COMMISSIONER SMITH: But people who become

at all successful, pretty soon, they start facing

some costs usually.

MR. MORRIS: They do, I mean, and one can

also spend \$1,001 on bandwidth and some additional

software and things like that. You can spend small

amounts of money and still reach a lot of people.

COMMISSIONER SMITH: The question, and

I\'ll ask you, Mr. Moulitsas; we\'ve run out of time,

but I\'ll squeeze it in is you mentioned earlier you

didn\'t want to get a couple college students who

were spending a couple thousand dollars, you said.

But how do we do that under the statute? There\'s a

group of people. They\'re spending over \$1,000 to

influence a Federal election, and how, exactly, do

we get out of that?

We tried passing an exemption on the basis

of a statutory construction, and these guys sued us

and said no, you can\'t do that. And now, it seems

to me, and this will be a theme I will go back to

82

in other panels, it seems to me we\'re getting a lot

of suggestions put forward to us, some even coming

from the reform community, that seem to be made out

of almost, you know, whole cloth. We will exempt

this or exempt that with sort of no statutory

basis.

So what would be the basis here, or how

would we get out of getting those college students

who spend a couple thousand dollars?

MR. NOBLE: The same way you\'ve done it

for a number of years. You have a number of

different concepts that come into play. First of

all, you didn\'t mention the major purpose test.

And the FEC has been struggling with the definition

of what is a political committee for a long time.

COMMISSIONER SMITH: Okay; so these guys

have their major purpose. They start a little blog

to influence the election.

MR. NOBLE: Okay; that\'s the assumption.

But then, you have the issue, and this is going to

be a little bit technical, but you have the issue

of whether or not you have individuals doing their

83

own activity or whether or not they\'re giving up

control of the money. Let me give you two

examples: a couple of college students getting

together, pool their money right now; take an ad

out in the Washington Post. My view of it is that

is not a political committee. They are doing

individual, independent expenditures.

However, if a college student right now

goes around and collects \$25,000 from his fellow

students to take out an ad supporting President

Bush\'s election, then, yes, it probably is a

political committee whether it\'s being done online

or offline.

So, you know, I think this is the debate

about what is a political committee.

COMMISSIONER SMITH: I don\'t see the

difference. You said, one, a couple of students

put their money in and buy an ad. The other, you

said students go around, and they talk to other

students, and they get money from them. Isn\'t that

really a couple of students putting their money

together to buy an ad?

84

MR. NOBLE: This is a debate, I think, for

the political committee regulation, because what

I\'m talking about, and I think the courts have

talked about this, is that there\'s a sense of

giving up control when you form a political

committee, that you\'re controlling other people\'s

money, versus the greater First Amendment rights

you have when you\'re doing your own speech.

And I understand there\'s a lot of debate

about that. I understand there is a lot of debate

about independent political committees that do

independent expenditures. I\'m saying that that

same kind of concept exists outside the Internet

and on the Internet.

I did have one other point, if I may just

make very quickly\--

CHAIRMAN THOMAS: Five seconds.

MR. NOBLE: Five seconds.

I was actually looking at the Daily Kos

site about advertising, and it is an interesting

tabulation about how much money can be spent. If

I wanted to buy a premium ad, and we\'re actually

85

thinking about it, a premium ad on the Daily Kos

site for three months, it costs \$50,000.

MR. MOULITSAS: It\'s never been sold.

\[Laughter.\]

MR. NOBLE: How about \$5,000?

\[Laughter.\]

COMMISSIONER MCDONALD: This is how

General Motors lost all their money, by the way.

COMMISSIONER SMITH: Thank you. We\'ve run

over. Thank you, Mr. Chairman.

CHAIRMAN THOMAS: We\'ll come back to you,

Commissioner Smith.

Next, our general counsel, Larry Norton.

MR. NORTON: Thank you, Mr. Chairman, and

I thank the panel for coming.

I would like to follow up for a minute on

Commissioner Smith\'s question, and I don\'t think

it\'s easily dodged. There\'s a debate that I expect

we\'re going to have to face after we leave here

today as to whether we try to protect activity that

we\'re interested in protecting with the media

exemption or with this individual exemption or with

86

some combination of both.

You, Mr. Noble, have said look at the

individual exemption as your vehicle. But the

testimony we\'re getting suggests, and we\'ve heard

it this morning, too, that many blogs provide

opportunities for others to add content, for other

bloggers to join in the debate on those blogs, and

it doesn\'t take long before you\'ve got two or three

individuals or many, many more who are involved in

some enterprise together.

So the question I guess is if we approach

this by leaning on the individual exemption, do we

say that individuals basically carry that exemption

into associations with others? And if not, how do

we draw the line in deciding when we\'ve got a

political committee and when they don\'t?

MR. NOBLE: I think in most cases,

individuals working together carry the exemption

with themselves. But again, if you set up an

Internet site right now, and you solicit

contributions, and you collect those contributions

yourself for the purposes of making contributions

87

to other candidates or taking out ads whether it be

on the Internet or taking out ads in the Washington

Post, you become a political committee, and I don\'t

think there should be a special exemption for that.

But when you\'re talking about individuals

posting on a blog, I don\'t look at that as being

the same type of thing of getting together to spend

\$25,000 on a specific ad, and these people are

posting for no cost. I assume you don\'t charge for

posting; are posting for no cost. So I think it is

a different type of community.

And while I very much believe that you

have to work with the rules, the Federal election

laws that you have, I also think that part of the

rulemaking process is to try to adapt those rules

where possible. And I do want to make a point in

reference to what Commissioner Smith said. We

acknowledge that some of the suggestions we made

may be beyond your authority, and you may have go

to Congress about them. And I think this is

something Congress may have to deal with again.

But I think, you know, everybody is

88

shocked that there are really difficult questions

about what is a political committee, and what is

the press when you\'re dealing with the Internet.

Well, these have been difficult questions dealing

outside the Internet, and I think that the FEC has

struggled with it for many years. It has come up

with some good decisions; it\'s come up with some

bad decisions about it.

And I think that most of these people

would not be political committees. I guess I would

say I don\'t see under the theory they would be a

political committee. If Markos is setting up a

Website, and he is letting people post on his

Website, what would make him a political committee?

MR. NORTON: Mr. Morris, did you want to

respond?

MR. MORRIS: Yes, I just wanted to jump in

to say, frankly, the entire discussion that the

Commission is having with Mr. Noble, who is clearly

the most expert on this panel in terms of campaign

finance reform precisely makes me concerned about

the line drawing and the case-by-case analysis,

89

the, you know, very difficult cases which there\'s

no doubt these are very difficult cases, but if

that\'s true, then, the risk is that we still have

an enormous problem.

Because if the only way that we can figure

out if those three college kids are a political

committee or not is to go through these very

difficult cases, we are going to chill some speech

that I think we all want to protect. And so, I

mean, I just reiterate the hope that you can create

a simple exemption.

If you don\'t spend more than \$25,000 doing

anything related to the Internet, you\'re just free.

It doesn\'t matter if it\'s 50,000 of you or three of

you or one of you or whatever, if you\'re below

that, then, I\'m just tossing that out. I\'m not

asserting that that\'s the only way you can achieve

a simple rule. But you need to achieve a simple

rule, or we\'ve lost something.

MR. NOBLE: If I can just respond to that

just very quickly, I agree with a lot of that, and

again, as I said in my opening statement, I think

90

these rules, and we want to talk about the hard

questions, the hard questions aren\'t going to

impact most people. They\'re not going to be aware

of them, and it\'s just not going to come up the way

it hasn\'t come up offline. But there always are

going to be hard questions out there, no matter

where you set the rules, no matter what you do,

including in terms of development of technology

nobody is even thinking about right now, and you\'re

just going to have to deal with that.

MR. NORTON: Mr. Krempasky, I know you

want to respond to this, but let me throw out

another question at the same time.

I want to try to clarify my understanding

about what you are suggesting the Commission do

with respect to the media exemption. You said no

blogger should have to worry about government

regulation, and there\'s no doubt that bloggers are

journalistic entities. As has been pointed out in

the testimony, there are all sorts of people

blogging for all kinds of purposes. Someone could

establish a blog three or four months before the

91

2006 election with the sole purpose of electing

Congressman Jones. The Website could disband. The

blog could disband once the election was over. The

purpose of the site could be to solicit donations

or direct readers to the Congressman\'s site.

How does the Commission go about

distinguishing between the bloggers who ought to be

protected under the media exemption and an advocacy

group or a political committee on the other hand,

or should the Commission not bother trying to make

those distinctions?

MR. KREMPASKY: Well, if you have

definitions for other regulated entities, and

obviously, we\'re talking about political committees

now, and what does that, you know, how do we

determine that? Clearly, that impacts your

determination about who is a media entity and who

is not just based on the statute alone.

But I think all of these questions really

come back to what would you do if this were a small

newspaper that started during an election? Or what

would you do if this were a small radio station,

92

some sort of other media outlet that looked a lot

like National Review or the American Prospect,

which is clearly an ideological publication that

enjoys the press exemption? What happens when a

talk radio host spends three months attacking their

local Congressman because of some boneheaded move

they put forth in a legislature that year?

I think that you simply can\'t draw those

lines, and that is why I think they need to be

broad, and I think that what Larry mentioned about

the fact that people won\'t need to worry about

these rules simply just doesn\'t take into account

the very real possibility, in fact, I think the

expectation, that folks are going to file

complaints about each other out the wazoo.

I mean, it\'s so easy to file a proper

complaint with the FEC, and there are millions of

bloggers who are just dying for the chance to use a

database and a mail merge to roll 3,000 complaints

in here based on the time stamps of their

opponents\' Weblogs, because they\'re convinced they

were doing it at the office.

93

MR. NORTON: Thank you very much.

CHAIRMAN THOMAS: Mr. Staff Director, Jim

Pehrkon.

MR. PEHRKON: Thank you, Mr. Chairman, and

I thank the panel for appearing today.

Since I don\'t know very much about the

whole concept of blogging, but I have learned a

little bit from Mr. Moulitsas today, and so far,

what I think I\'ve figured out is you\'re a

corporation but primarily because or at least in

large part for liability purposes.

MR. MOULITSAS: You have 50,000 content

contributors, approximately, who are able to post

for free.

MR. MOULITSAS: Yes.

MR. PEHRKON: You are a self-described

blogger, and you spend somewhere around in excess

of \$150,000. Part of what I\'m trying to do is get

a better understanding of how you\'re organized and

what it is you actually do and how you do it. And

in part, what I am looking for is do you have paid

employees? And if so, how many?

94

MR. MOULITSAS: I have one paid employee.

He\'s a contractor. He manages the technical side

of things. So he\'s a programmer.

MR. PEHRKON: Now, when you decide what

content is going to go on your Website, do you make

that decision, or do you have a group of people?

MR. MOULITSAS: Well, every day on the

site, there are about 200,000 words of content

written. I write maybe 2,000 of those words,

maybe. So the vast majority of the content is not

written by me. I dominate the front page of the

site, but I also have guest bloggers who are also

unpaid, who fill in for me when I\'m in places like

this. So there\'s still blogging going on on the

main section of the site.

Now, you have what\'s called the diaries,

which are blogs within the blog, which anybody who

is a member of the community can use. And there

are about 300 to 600 of those written every single

day, and I have no control.

MR. PEHRKON: And you have no control over

that.

95

MR. MOULITSAS: Yes, and then, comments.

There are a good 20,000-30,000 comments written any

day.

And again, I have control in the sense

that if somebody is, you know, racist, anti-Semitic, crosses

a certain line, we can delete it,

but I don\'t have any other control.

MR. PEHRKON: How do you fund your

operation?

MR. MOULITSAS: Advertising.

MR. PEHRKON: Strictly by advertising?

MR. MOULITSAS: Yes.

MR. PEHRKON: Actually, I have no other

questions. Thank you very much. I thank the

panel.

MR. MORRIS: Could I jump in just to make

crystal clear on the record, and I think you

appreciate this, that Markos\' blog is an exception.

I mean, the vast, vast majority of blogs don\'t do

any of the things in terms of the 50,000 or the one

employee or anything like that.

MR. PEHRKON: I appreciate your

96

clarification on that.

CHAIRMAN THOMAS: Okay; I\'m going to let

Commissioners go back through and ask questions.

We\'ll go in sort of reverse order.

Commissioner Smith. Looks like we\'ve got

about 15-16 minutes left, so if you can sort of

work with a three-minutish kind of\--

COMMISSIONER SMITH: I was going to have

more time to listen to other rounds, but\--all

right; Mr. Moulitsas, you\'ve got this guy,

Armando, who posts on your site with some

regularity. I don\'t know who he is. He\'s just

Armando.

MR. MOULITSAS: Yes.

COMMISSIONER SMITH: Armando. So he\'s

been publishing some stuff saying that the

Republican Commissioners all want to regulate the

Internet; it\'s part of a Bush administration plot

to silence the left. Now, it\'s hard for me to

imagine reporting that would be more counterfactual

and incorrect and goofy, all right?

Why on Earth\--most of your comments are

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devoted to the press exemption, your written

comments\--why should you get the press exemption

when you\'re publishing something so irresponsible

as that and so factually inaccurate?

MR. MOULITSAS: You know, I say the same

thing about Bob Novak and Charles Krauthammer\--

\[Laughter.\]

MR. MOULITSAS: \--and Tucker Carlson, and,

I mean, I could go down the list. I mean, we don\'t

deem, we don\'t give the press exemption based on

the content, the political leanings, or whether

it\'s 100 percent factual or not. Armando, you

know, in addition to that also led the charge

against Alberto Gonzalez being confirmed as

Attorney General, and actually moved a lot of

people to actively oppose Alberto Gonzalez.

And he was right. That was true.

\[Laughter.\]

MR. MOULITSAS: Gonzalez is a torturer.

COMMISSIONER WEINTRAUB: But again,

unsuccessful.

MR. MOULITSAS: Unsuccessful. But the

98

press exemption doesn\'t really\--I mean, I don\'t

think it\'s designed to say only people who write

the truth get it. I mean, it\'s clearly\--opinion is

a form of journalism, is a form of communication

that does get the press exemption. It has

traditionally.

Now, if that\'s going to change in other

media, then, we could talk about bloggers getting

treated the same, but until\--but I don\'t see why

blogs should be treated any differently than the

rest of the media does.

COMMISSIONER SMITH: Thank you, Mr.

Chairman.

CHAIRMAN THOMAS: Commissioner McDonald

COMMISSIONER MCDONALD: Mr. Chairman,

thank you.

First of all, Michael, just to go back for

just a minute, you don\'t happen to have that clip

of the President, do you?

MR. KREMPASKY: No, but it did actually

make its way around the blogs.

\[Laughter.\]

99

COMMISSIONER MCDONALD: Markos, let me ask

you a serious question about\--you said earlier that

you had worked with the Dean campaign, and could

you tell us more about that? I don\'t quite

understand what that means. You said they didn\'t

have any say over the content that you put out. Am

I right about that?

MR. MOULITSAS: Correct.

COMMISSIONER MCDONALD: Did they pay you?

MR. MOULITSAS: My relationship with the

Dean campaign was based on providing technology

services to them; nothing to do with Daily Kos

whatsoever.

COMMISSIONER MCDONALD: I see.

MR. MOULITSAS: I was, at the time\--I

mean, blogging was a side venture for me for a long

time. I worked at a Web development shop for a

long time.

COMMISSIONER MCDONALD: I see.

MR. MOULITSAS: And again, for 99.9 percent of

bloggers, more, blogging is a side thing, and they

use their expertise to do their day jobs, and

100

blogging is something they do when they have the

opportunity to do so. And at the time, I was doing

some technology consulting, and the blogging stuff

I did on the side.

Now, the site has done so well that it\'s

become my main\--and I don\'t need to do consulting;

I don\'t need to do anything else. But I\'m one of,

you know, three, four, five bloggers in the world

that really have that opportunity.

COMMISSIONER MCDONALD: Well, for those of

us who are about to be unemployed, I\'m very

interested in this.

\[Laughter.\]

COMMISSIONER MCDONALD: I noted that you

said basically, if I followed you correctly, you

said that in your absence, you had a number of

people put up messages for free, which is really

not bad at all. I like this approach a lot, so

people basically post the messages, and when you\'re

at a place like this, somebody is basically

covering for you with messages, I gather.

MR. MOULITSAS: Yes; it\'s a community. I

101

mean, people are having discussions and discussing

things. One of the\--the power of blogging really

doesn\'t stem from any one person having the right

ideas and being 100 percent right 100 percent of

the time. Its power comes from the fact that

people are aggregating and working with each other

and communicating, and it\'s a back and forth.

So I\'m not talking\--it\'s not like your

traditional media where you have columnists talking

down to the audience or a news anchor talking down

to the audience. I\'m actually having a

conversation with my audience and with other

bloggers.

COMMISSIONER MCDONALD: Right.

MR. MOULITSAS: And that creates a more

collegial atmosphere and a more powerful atmosphere

to work together and pursue certain causes.

COMMISSIONER MCDONALD: Did you have a lot

of blogging activity in support of the Dean

campaign while you were working for them?

MR. MOULITSAS: I was a Dean supporter

from mid-2002, so way before anybody knew who

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Howard Dean was, so, yes. In fact, Joe Trippi was

a reader of my blog, and one of the reasons he

actually approached me and my then-business partner

Jerome Armstrong was because he read our blogs, and

he thought we were onto something.

COMMISSIONER MCDONALD: And after you were

on the payroll, I gather that you continued to do

the pro-Dean blogging. Would that be fair?

MR. MOULITSAS: Correct, yes.

COMMISSIONER MCDONALD: I appreciate it.

I am just trying to get some sense of what\'s going

on out there. I must say, and I hate to say this

in front of Michael, but I have learned a lot

today. I\'m learning more each and every time. I

appreciate you all being here.

CHAIRMAN THOMAS: Commissioner Mason, I

believe.

COMMISSIONER MASON: I wanted to go back

to the technology question and maybe give some

other panelists an opportunity to answer that,

because for me, it\'s key. The way we avoid making

content based distinctions or truth based

103

distinctions on media is we look at the facilities,

and so, if you\'re a broadcasting station, the only

question is is it the broadcaster\'s content, or is

it an ad? And in the print world, there is a

pretty well-known distinction between editorial

content, by which they mean news, editorials, op-eds,

everything that belongs to the publisher in

the legal sense and ads.

And so, I\'m just wondering about how we

apply that term facilities in an Internet context,

and again, whether or not there\'s an argument for

treating the Internet itself as a news

dissemination facility such that all Internet

content published by anyone, whether it\'s the

50,000 registered users at Kos or 5 million, 50

million people would be covered by the media

exemption unless it\'s a paid ad.

Mr. Morris, whoever wants to\--

MR. MORRIS: Let me just offer my

reaction. I mean, I am certainly not an expert in

your treatment of facilities in the offline

context, so I don\'t really know what you\'re drawing

104

your reference from, but listening to this,

certainly, the Internet is a facility of news

media. There is no doubt about that in my mind.

But I also assume that a printing press

that prints on newsprint is not inherently news

media. I mean, one can use a printing press to

print on newsprint, and presumably, in that

context, that\'s not news media. So I would assume

that the Internet would also have distinctions like

that. It\'s more, actually, who\'s using the

printing press and what their purpose is.

And so, I would suggest, you know, come

back to who\'s using the Internet. If it\'s

individuals, let\'s just take them out of the

equation. Then, we don\'t have to worry about the

news media exemption.

COMMISSIONER MASON: Mr. Moulitsas,

Mister\--

MR. MOULITSAS: Well, in my prepared

remarks, I refer to communications technologies.

And I left out quite a few, actually, that I

thought of later. But the one thing they have in

105

common is that they use the Internet to connect

people to people, so and again, I don\'t know the

exact definition you have of facilities, but

clearly, that\'s the one thing they have in common

is that\'s the tool that\'s used. And you have to

access it separately. It\'s like if you read a

paper, you have to go and buy it out of a vending

machine or whatever.

But, yes, I think the Internet is the one

common element, and that\'s the one facility to make

all these things happen.

MR. NOBLE: And I agree with John that the

Internet is closer to the press facility, to the

press\--the public medium, the actual press, the

printing press, and that it can be used for press

exemption activity, and it can be used for things

that don\'t have the press exemption. I don\'t think

you want to say that everything over the Internet;

I don\'t think you can say that everything over the

Internet\--

COMMISSIONER MASON: Don\'t be so sure that

I don\'t want to say that.

106

\[Laughter.\]

MR. NOBLE: I think I can come up with

some hypotheticals that may give you pause, but

that\'s for another time.

CHAIRMAN THOMAS: Commission Weintraub.

COMMISSIONER WEINTRAUB: Thank you, Mr.

Chairman.

Mr. Morris, you among others have pointed

out that there is virtually no cost associated with

adding a page to a Website, cutting and pasting

content from another Website, which might go under

the category republication of campaign materials,

linking to another Website, and I would assume that

at least three of you would agree that since there

isn\'t any cost, we shouldn\'t be regulating that.

Am I correct for you three? Because I\'m

going to ask Mr. Noble separately. Yes?

MR. KREMPASKY: I don\'t necessarily think

it\'s the cost question that drives the point that

we don\'t think it should be regulated. It\'s a much

more principled statement about its effectiveness

and who\'s doing it, but clearly, we would agree

107

that there is no cost, and it doesn\'t seem to

demand it.

COMMISSIONER WEINTRAUB: So if we are an

entity that regulates money being spent, we would

not have any business regulating whether there is

any money being spent.

MR. KREMPASKY: Well, again, I think I

mentioned earlier, and I think Commissioner Smith

mentioned earlier that you don\'t only regulate when

there\'s being money spent; that there are, you

know, times where you associate a value to

something that doesn\'t necessarily have dollar

bills changing hands.

MR. MORRIS: But certainly, the

republication, if I go to a campaign site, I

download a PDF file, and then, I stick it on my

site and make it available from my site directly,

that\'s cost-free. I mean the\--

COMMISSIONER WEINTRAUB: And surely, that

happens all the time.

MR. MORRIS: All the time. And from a

technical perspective, it\'s a heck of a lot simpler

108

for me to do that rather than just provide a link.

I mean, the link, I have to then worry about gosh,

what if the campaign moves the document? And so,

it\'s just easier. So a republication is not, I

think, in the online world the same thing as

printing 10,000 more flyers.

COMMISSIONER WEINTRAUB: Mr. Noble, I\'m

guessing that you have a different perspective on

this.

MR. NOBLE: No, and this goes back to what

Commissioner Smith was saying. Yes, the FEC has

assigned value to things that people haven\'t

charged for. But that\'s been based on the analysis

that, in fact, that is something that is normally

charged for, that normally has value. Also, and

yes, it\'s true in civil penalties; some

Commissioners, not all, have also been willing to

look at in terms of the remedy what was the actual

effect of that expenditure, but I\'m not aware of a

case anywhere in the world, there is no cost for

something, like my going out on the street and just

speaking; there is no cost there, and yet, the FEC

109

has assigned a value to it.

COMMISSIONER WEINTRAUB: So you would be

comfortable with our drawing the conclusion that

since there is virtually no cost to those kinds of

activities, we shouldn\'t be regulating them.

MR. NOBLE: Well, it depends on which

activities you\'re assigning a cost. I\'m actually

even comfortable with even where there is some cost

to it, it will fit under the individual volunteer

activity.

COMMISSIONER WEINTRAUB: Republication of

campaign materials.

MR. NOBLE: I hate to say this; I hate the

republication of campaign materials issue, because

it is such a strange issue in the sense that the

ability to come forward with something; it is in

the law. That\'s the problem with it. It\'s in the

law that says you can\'t republish campaign

materials, but it goes on all the time. I think it

was meant to apply to the situation where\--well,

when it was written, not for the Internet, but when

you go into a campaign, pick up their brochures,

110

and publish 10,000 copies of them.

I think that there may well be a different

analysis on the Internet because of how easy it is

to go back and forth with things. It\'s never been

an exemption or an original law I\'ve been that

comfortable with.

COMMISSIONER WEINTRAUB: And would you

feel the same way if the Website is maintained by a

state party organization?

MR. NOBLE: No.

COMMISSIONER WEINTRAUB: Why?

MR. NOBLE: Because a state party

organization is going to be spending money, and I

also think it\'s a political committee, and there,

well\--

COMMISSIONER WEINTRAUB: Markos spends

money, too.

MR. NOBLE: Right, but there, you\'re

getting to the question of what is its purpose?

What is its major purpose? It does have a

political purpose. If\--

COMMISSIONER WEINTRAUB: I think anybody

111

who republishes campaign material has a political

purpose.

MR. NOBLE: I understand. And as I said,

look, I don\'t feel totally comfortable with even my

answer that you know, you may give it more leeway

in the Internet world, because I understand it\'s a

problem. But when you\'re dealing with a political

party, no, I don\'t have a problem with that,

because what they\'re really trying to do is support

the candidate by basically paying for things the

candidate might otherwise have to pay for.

Now, if in the instance\--

COMMISSIONER WEINTRAUB: But the candidate

has already got it up on his Website. It isn\'t

something he otherwise has to pay for.

MR. NOBLE: But there are expenditures

that the party is spending to keep its Website up,

but they don\'t get the individual volunteer

exemption, as far as I am concerned.

COMMISSIONER WEINTRAUB: So you think that

the money that the state party\--you have to look at

the entire cost of the state party Website.

112

MR. NOBLE: I don\'t give them the

individual volunteer exemption. That\'s right.

COMMISSIONER WEINTRAUB: So you think we

should Federalize all the state party Websites and

say they have to\--

MR. NOBLE: No, I think there may very

well be, depending on what is on that Website, a

Federal component of a state party Website. I

think there is one right now. I think you regulate

it as such.

COMMISSIONER WEINTRAUB: Well, what I am

trying to figure out right now is how do we measure

this? And does the statute give us the authority

to do any kind of allocation whatsoever if we are

going to define it as a public communication by a

state party?

I looked a few months ago at the Arizona

Republican State Party Website, and they had a

really nice montage on their home page of all their

candidates. They had Senator McCain up there.

They had their state level candidates all up, and

they had President Bush up there, all their

113

Republican candidates that they were pushing had

their pictures on the front page.

Now, do we have to start measuring, gee,

people have different size screens. How do you

even do that? Gee, Senator McCain takes up this

much space, but the governor takes up that much

space. And then, they change the whole page. I

went and looked at it yesterday because I thought

maybe I could print it out to show you what I was

talking about, and they\'ve changed it now. Senator

McCain is gone, but President Bush is still there,

but he\'s no longer a Federal candidate.

MR. NOBLE: You\'re now talking about

something that\'s beyond republication. You\'re

talking about whether you can just exempt party

committees, state party committees from the Federal

election laws for things that are printed on the

Internet, and I don\'t think you can do that. And I

think you\'re going to have to come up with some way

to allocate it.

COMMISSIONER WEINTRAUB: How do we do

that?

114

MR. NOBLE: Well, you use time and space,

and yes, I know it is difficult on the Internet

because it\'s constantly changing. But you\'re going

to have to do that. If your alternative is to say

state parties are no longer regulated over the

Internet, and they can support Federal candidates

all they want over the Internet, I don\'t think you

have that choice. I admit it\'s not easy.

CHAIRMAN THOMAS: I\'m going to jump in

here.

Vice-Chairman Toner.

VICE-CHAIRMAN TONER: Thank you, Mr.

Chairman.

Mr. Morris, pages 17 to 18 of your

comments, you critique sort of the core proposal in

the NPRM that would treat as a public communication

paid advertising on someone else\'s Website. As I

understand your critique, your concern is look:

some of this advertising is very inexpensive, as

low as \$10 to \$25 a week, and you suggest that

there ought to be some spending threshold involved.

Any specific proposal you would have us

115

contemplate on that?

MR. MORRIS: In terms of a dollar amount?

VICE-CHAIRMAN TONER: Yes.

MR. MORRIS: You know, again, if you put a

\$25,000 exemption for individual activity, then,

maybe this question becomes much less relevant.

But assuming that away for a second, you know, I

can pull a number out of there, and I could say if

you\'re not going to spend, you know, \$1,000, if

it\'s under \$1,000, it\'s almost trivial, but I

honestly don\'t have the years of experience that

you have or that Mr. Noble has in terms of figuring

out that kind of line.

So the line I would draw is not really

based on an assessment of what in the offline world

people care about. But, you know, certainly, I

would pull out, you know, \$500.

VICE-CHAIRMAN TONER: Is it your view that

to have no line at all, no spending threshold at

all is overly broad?

MR. MORRIS: Yes, absolutely. I think to

make\--to say that you\'re regulating paid ads and

116

then to have it apply to a \$5.95 promotional\--

VICE-CHAIRMAN TONER: Overly broad?

MR. MORRIS: Very overly broad.

VICE-CHAIRMAN TONER: Mr. Noble, do you

agree?

MR. NOBLE: Yes.

VICE-CHAIRMAN TONER: Mr. Moulitsas, as I

understand your testimony, your view is that the

FEC should not change course with respect to online

politics, that the current exemption for online

politics should be preserved.

MR. MOULITSAS: I understand you can\'t do

that.

VICE-CHAIRMAN TONER: What is your best

argument for why we should proceed that way?

MR. MOULITSAS: Any regulation presents a

potential chilling effect on a medium that is truly

the first democratic mass medium in the history of

the world. Anybody can participate; anybody can

have a voice; and any regulation that potentially

chills that participation I think is a net

detriment to the medium, which is, in effect, a net

117

detriment to our democracy.

VICE-CHAIRMAN TONER: Thank you.

CHAIRMAN THOMAS: Just quickly, I wanted

to use the last of our time\--we\'re already past

11:15, but I just wanted to quickly, for the

record, point out that the Commission has asked

Congress in our legislative recommendations to

increase the thresholds for registration as a

political committee. The \$1,000 threshold, we all

acknowledge here, I think is in this modern era a

little bit low. If Congress could help us on that,

that might alleviate some of these concerns we\'ve

got about some of these folks in the Internet

community potentially running into political

committee status.

I also wanted to note that\--it sort of

came up\--the exemption that has been in the law for

quite awhile about use of corporate or labor

facilities for occasional isolated incidental

volunteer work or campaign related work, it is

worded in a way that says that the standard is

the amount of usage such that it wouldn\'t interfere

118

with the organization\'s ability to carry out its

regular functions, and it would not interfere with

the employee\'s carrying out his or her regular

duties, and in that sense, it is open-ended. The

one-hour, four-hour rule is, indeed a safe harbor

that says we won\'t have to look into those, you

know, is work being interfered with concepts if

you\'re still within those time frames.

So there\'s an awful lot of flexibility in

terms of people working for an employer to go ahead

and use the computer and so on at night, I think,

under existing rules, and I think one thing we\'re

trying to do with this rulemaking is use it as an

opportunity to make that very, very clear.

Thank you. We have run out of time on

this panel. Your comments have been very, very

helpful, your written comments very insightful, and

we really appreciate your coming. Thank you very

much. We will take a little break, and we will

come back at 11:30.

\[Recess.\]

CHAIRMAN THOMAS: Let us take up again.

119

We are ready to reconvene this special session.

Our second panel this morning consists of

Carol Darr, Director of the Institute for Politics,

Democracy, and the Internet; she\'s a former staff

attorney from the Commission; Marc Elias, who is

here on behalf of John Kerry for President, Inc.

and the Kerry-Edwards 2004, Inc. committees; Donald

Simon is here on behalf of Democracy 21; and Matt

Stoller is one of several bloggers behind the

Blogging of the President, and we welcome each one.

Again, in case you didn\'t get the early

ground rules, we will give you five minutes each to

make an opening statement, and we\'ve got a little

light system there that starts letting you know

when time starts getting short. And we will go

alphabetically.

And Ms. Darr, welcome. Please begin.

MS. DARR: Thank you. I am very pleased

to be back at the Federal Election Commission,

where I started my legal career 29 years ago.

I represent the Institute for Politics,

Democracy, and the Internet, whose mission is to

120

improve campaign conduct and promote democratic

values through the Internet. I\'d like to use my

limited time to make three points. Number one: as

the other speakers have noted, the political

landscape has changed profoundly because of the

Internet, and the campaign finance regulatory

scheme has to change with it.

One of the most important things that the

Internet has done is to lower the financial

barriers to entry to politics and to journalism.

Because of the Internet, politics is no longer

limited to big donors and professional and

semiprofessional operatives. Those days are over.

And so are the days when corporate media elites

could treat serious national journalism as their

exclusive domain.

Now, thanks to the investigative efforts

of bloggers, we no longer have to treat the

pronouncements of network television anchors like

Dan Rather as received wisdom. Stories like the

racist comments of Trent Lott, that would have died

on the vine in years past, now see the light of day

121

thanks to bloggers who refuse to give him a pass.

The second point I\'d like to make is to

urge that this rulemaking not become a vehicle for

contributions by corporations and unions and

wealthy individuals that would otherwise be

prohibited. For almost 100 years, since the

Tillman Act was passed in 1907, Federal law has

prohibited corporate contributions in order to

limit the corrosive influence of large aggregations

of wealth.

To accomplish this goal while at the same

time serving an equally important goal, not

interfering with a free press, the Federal Election

Campaign Act has made a fundamental distinction

between media corporations and other corporations,

and that brings me to my third point, the media

exception.

At its essence, this extraordinary

provision allows a media corporation, through

certain of its employees, reporters, editorial

writers, cartoonists to spend an unlimited amount

of corporate money communicating with candidates,

122

asking them anything about their campaigns, with no

question related to money or strategy off limits,

activities, in short, that would be considered

coordination if the person doing the questioning

were anybody but a member of the press.

This exemption is so broad that aside from

various journalist codes of ethics, there is

absolutely nothing to stop reporters from becoming

partisan advocates of candidates, what reporters

derisively call getting in the tank with the

candidate. The media exemption, however, allows

them this leeway, because to do otherwise would

interfere with their rights as journalists.

All members of the press are entitled to

this exemption: the good, the bad, the hacks, the

partisans, the ethical and the unethical and the

crazies, everyone from the New York Times to the

National Enquirer to the independent journalist

working in his or her basement distributing work on

a mimeograph sheet around the neighborhood is

entitled to a media exemption.

This broad treatment is in keeping with

123

the legislative history of the act as it was passed

by Congress, and it is consistent with the FEC\'s

previous advisory opinions. Given these

precedents, I expect that you, the Members of the

Commission, will probably grant this exception

widely to bloggers, or you will send the issue back

to Congress, and they will specifically include

bloggers within the media exemption.

But, and here is the big but, this broadly

granted media exemption contains within it an

absolutely unavoidable consequence, and that is

there is no way that I can see to keep big money

out of this picture. My concern is not with

average citizens who choose to publish a blog and

share his or her viewpoints on the Internet but

with large corporations and unions who seek to

unfairly influence campaigns by spending large

amounts of money under the guise of being a blog.

If I could, I would like to use my fellow

panelist, Matt Stoller, with his permission, and

his excellent blog as examples. Let\'s assume Mr.

Stoller is granted the media exemption, as I assume

124

he will. As a media entity, he is entitled to use

his own funds and the funds of his advertisers and

any investors he can persuade to support his

enterprise.

Let\'s say, for example, the Halliburton

Corporation wants to support his blog and invest.

If you will, let\'s call this new media entity the

HalliStoller blog. Like any media entity, for

example, the New York Times or ABC News, the

HalliStoller blog can publish anything it wants on

any topic. Like the New York Times, it can publish

editorials, advocating the election or defeat of

any candidate. The New York Times does this every

election, using its corporate money to produce its

content and distribute news, and so can the

HalliStoller blog.

Although the New York Times does not

solicit money for candidates there is nothing

whatsoever in campaign finance law or any other law

to stop them from doing so. It is simply a

question of their own ethical policies, not the

law, that prevents them.

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Similarly, a HalliStoller blog can spend

an unlimited amount of its money, corporate funds

or other funds, and solicit money for a candidate.

It can do this in any way that is in keeping with

the practices of other media entities. It can

distribute editorials; it can put them on its

Website, by email, RSS feed, listserv.

The only way to stop the HalliStoller

campaign from taking and spending corporate money

is to prevent all media entities from having

corporate shareholders or receiving corporate

payments, and that is not going to happen. I don\'t

want to single out Halliburton or Matt Stoller.

The same media exemption is available to any union

and to any millionaire or any billionaire. George

Soros or the AFL-CIO can team up with a blogger or

just create their own blog. So can every well-heeled

supporter of George Bush or John Kerry.

As a former campaign finance lawyer, I can

think of any number of ways to use this exemption

to pump huge amounts of big money into Federal

politics. And that is what I fear about a widely

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granted media exemption, not that the old media

will lose its power. They can take care of

themselves. What I fear is that our fragile, very

flawed system of campaign finance regulation will

be completely destroyed.

There are those who applaud that result,

but only if you think the system cannot get any

worse than it is now should you welcome a

development that will gut the 98-year-old provision

that prohibits corporate contributions in Federal

elections.

It seems to me that the Members of the

Commission should widely grant the media exemption

to anyone with a blog or almost anyone, and the

precedents and the legislative history point in

that direction, or you can preserve the prohibition

on corporate money that has stood for almost a

century. But I don\'t see how you can do both, and

that\'s a pity.

Thank you.

CHAIRMAN THOMAS: Mr. Elias.

MR. ELIAS: I will try and be brief,

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because I know you\'re getting a lot of opening

statements from a lot of people over the course of

these two days.

Let me start by saying I am a campaign

finance lawyer, and if Halliburton had had a blog,

it would not have supported my candidate.

\[Laughter.\]

MR. ELIAS: And with all due respect, this

is a rulemaking in search of a problem. I can give

you a litany of problems that I experienced through

the campaign finance laws as the general counsel to

the Kerry campaign. We had problems with the rules

regarding travel, the rules regarding coordination,

the rules regarding soft money, the rules regarding

appearing and attending at state party events, the

rules regarding agency. In fact, if you opened up

11 CFR, we could literally start at page 1 and end

several hundred pages later with all of the issues

we faced.

We never faced a problem with the

Internet. It just wasn\'t a problem. I\'m not

suggesting that in 10 years, there may not be a

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problem with Halliburton starting a blog or setting

up some complicated Web scheme, but if that

happened, this Commission would still be around.

Congress would still be around. And at that point,

Congress or the Commission would be in a position

to address legislatively or by rulemaking the exact

problem, the actual problem that is appearing

rather than at this point the Commission guessing

as to what, in two years or three years or five

years or 10 years what problem may come to the

forefront.

A lot has been said about the

democratizing effect of the Internet, and I won\'t

rehash that. You\'ve heard that from others; you\'ve

read it in our comments. The Kerry campaign relied

to an unprecedented degree on using the Internet as

an organizing tool, both financially as well as an

unprecedented number of volunteers who came to the

campaign through the Internet.

And one of my concerns with the course

that the Commission seems to be heading down is

that any time you regulate, whether you regulate a

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lot, or you regulate a little, you send a message

to the community that there are now traps to be

avoided.

If you define bloggers as in the media

exemption or out of the media exemption, by

applying regulations to the Internet, individuals,

ordinary folks out there reading the newspaper,

that there is now regulation of the Internet, and

it makes them that much less likely to get

involved. What we saw in 1999, for example, was

that this Commission issued an advisory opinion

that involved Web pages. It seemed relatively

narrow at the time.

What happened? We saw a pause in Internet

activity in politics and then a series of other

advisory opinions. Until the landscape got settled

again, there was a pause in the interest that

people had in being involved in an unsettled area

of the law.

All of this leads me to what, I think, my

central premise of today is, which is that there

are a lot of things campaigns have to worry about,

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and this Commission\'s job isn't, frankly, to increase

those numbers of issues regularly that we have to

worry about. We simply don\'t have, speaking now on

behalf of campaigns generally, we simply don\'t have

the time or the ability to monitor every Website

that\'s out there to find out who\'s paying for it?

Is it illegally facilitating the making of

contributions? Did the person who put this up

spend five hours last month rather than four hours?

Did it, in fact, increase the overhead to the

corporation that they used the computer on?

Who is linking to our Website? Who\'s

emailing? Where did they get the email list? How

did they value the email list? There are a whole

host of things that in the corporate arena, as Part

114 is currently written, we do worry about. When

we do an event at a corporate location, we worry

about who\'s handling the checks, how were they

solicited, how are we valuing the room? There are

a whole host of questions that we have to ask as a

campaign that in the context of the Internet there

simply isn\'t any practical way for a campaign to

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ask those questions, to gather that information,

and imposing a regime that requires the questions

to even have to be asked is one that is going to

impose an impossible burden on the campaigns and

one which is going to stifle grassroots activism.

The last thing that I wanted to say in my

opening, and I hope that there is some interest on

the Commission, is a topic that I doubt will be as

widely focused on in these hearings, and it\'s a

shame. Because to the extent that there is a

problem on the Internet right now, and to the

extent that McCain-Feingold is not being fully

implemented with respect to the Internet right now,

it has to do with fraudulent solicitations.

The fact is both the Kerry campaign and

the Bush campaign were victims of something that

every person in this room can agree was a crime.

It was a violation of the criminal code, and it was

a violation of McCain-Feingold, which was people

setting up false Websites pretending to be either

the Kerry campaign or the Bush campaign and then

sending out emails to their supporters, to people

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who believed they were giving to my candidate\'s

campaign or to the Bush campaign when, in fact,

they were giving to someone else.

This Commission has a statutory obligation

to enforce that provision. It was strengthened in

McCain-Feingold, and I hope that this Commission,

as it looks at how it could possibly change the

regulations and regulate more of the Internet

rather than focusing on bloggers or links or

Websites or email valuation, instead, it focuses on

the real bad actors out there, which are the people

who are stealing money from the grassroots

activists. They\'re stealing money from the

campaigns. And it\'s something that McCain-Feingold

was intended to strengthen and this Commission

ought to take the lead on strengthening.

CHAIRMAN THOMAS: Thank you.

Mr. Simon.

MR. SIMON: Thank you. I appreciate the

opportunity to testify once again on behalf of

Democracy 21.

Subject to the modifications set out in

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our written comments, we support the adoption of

the proposed rules suggested by the Commission.

These rules fall into two categories: those which

we believe the Commission must adopt as a result of

the Shays case and those which the Commission may

adopt if it wishes to provide additional clarity

and certainty to individuals engaging in political

discourse on the Internet.

I do want to emphasize that at least

insofar as the first category is concerned, this

rulemaking is the product of a court order and that

one option that is not before the Commission is

doing nothing, the opening statement of my good

friend Commissioner Toner notwithstanding.

Pursuant to the Court order, the

Commission must redefine the term public

communication to include at least those Internet

activities that constitute general public political

advertising. Maintaining a per se exclusion of the

Internet from the definition of that term cannot be

the result of this rulemaking consistent with the

court order.

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There are a few broad principles that

virtually everyone agrees with. First, the growth

of the Internet is good for political activity and

for increasing the number of small donors in

politics, an important goal of those of us who

support political reform.

Second, a distinctive and important aspect

of the Internet is that unlike other media, speech

can be widely disseminated for little or virtually

no cost, thus empowering all citizens to amplify

their voices as part of a robust and healthy

political debate.

We believe that the campaign finance laws

can and should be applied to online activity so as

to not chill or encumber these significant virtues

of the Internet. But it is a logical fallacy to

conclude that since it is possible to disseminate

speech at little or no cost on the Internet, it

necessarily follows that very large sums of money

can or will not be spent over the Internet to

influence elections.

And it is here where the principles of the

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campaign finance laws to guard against corruption

and the appearance of corruption are as fully

implicated in the online world as they are in the

offline world. There is no significant difference

between an individual spending \$50,000 in

coordination with a candidate to buy campaign ads

in the Washington Post and spending \$50,000 to buy

the same ad saying the same thing on

Washingtonpost.com. There is no significant

difference between a candidate coordinating with a

corporation on the spending of corporate funds to

buy video ads written, produced, and placed by or

at the direction of the candidate, whether the

placement of those ads is on a TV station or a

popular Website.

Money spent in large sums to influence

elections has the same impact whether the money is

spent online or offline. To exempt the Internet

across the board from all applications of the

campaign finance laws would be to open up the

Internet to serve as the vehicle for the flow of

soft money back into Federal elections, contrary to

136

the language and the purposes of the law.

This problem is particularly pernicious

when the spending of large sums for ads on the

Internet can be done in coordination with a

candidate, which virtually invites Federal office

holders and candidates to directly control the

spending of unlimited amounts of corporate and

union soft money to pay for video and Internet

banner ads to promote their own candidacies. The

same is true of political parties, which should not

be permitted to use the Internet as a vehicle to

spend soft money on ads attacking or promoting

Federal candidates, whether on their own Websites

or someone else\'s.

Thus, in this rulemaking, the challenge is

how to draw lines that strike the right balance to

avoid overinclusive regulation that would chill the

beneficial use of the Internet at little or no cost

for political discourse by individuals but also to

avoid underinclusive regulation that would allow

the Internet to become an unregulated haven for

unlimited soft money to be used in derogation of

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the campaign finance laws.

For purposes of the coordination rules,

the proposed definition of public communication to

include ads paid for on someone else\'s Website is

appropriate. This properly excludes from

regulation any activity on an individual\'s own

Website, including his or her own blog, but as we

note in our comments, the term public communication

should also include the publicly accessible

Websites of corporations, unions, political

parties, or other political committees.

Beyond that, it\'s somewhat ironic that the

NPRM has attracted so much criticism, because

virtually everything else proposed by the

Commission is in the direction of deregulating the

Internet from the law as it currently is and from

the rules that were in effect, for instance, in the

2000 and 2004 elections. Even under these existing

rules, there is no evidence that robust speech on

the Internet was threatened or suppressed. Quite

the contrary.

Nevertheless, the Commission proposes

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significant new deregulation of Internet activity

to create brand new exemptions from the definition

of contribution and expenditure for online activity

for individuals, to broaden the press exemption to

include press activity on the Internet and to

broaden the corporate facilities exemption to

include the use of computers. For the Commission

to relax all these rules in favor of Internet

activity should be welcomed by those concerned

about the freedom of the Internet.

As our comments indicated, we agree with

each of these deregulatory proposals. Subject to

our suggested modifications, we think the proposed

rules overall strike the right balance, and we

support the adoption of those rules.

Thank you.

CHAIRMAN THOMAS: Thank you.

Mr. Stoller.

MR. STOLLER: Hi. My name is Matt

Stoller. I\'d like to talk a little bit about the

geography of the Internet and a little bit about

political corruption and how it happens online.

139

I co-created the Website the Blogging of

the President and the issue-based blog

ThereIsNoCrisis.com. I also created unofficial

campaign blogs for Wesley Clark and John Kerry.

Over the past few years, I have contributed to many

blogs, forums, and listservs as both commenter and

main contributor. These include blogs of official

political committees like the DNC and the DSCC as

well as blogs run by friends and official blogs of

political candidates. I\'ve also done consulting

work for corporations on new media strategies. I

currently serve as the editor of a blog for a

statewide candidate running in a 2005 election,

though I want to make clear that I am only speaking

for me and do not represent my current employer or

any current or previous clients.

I am honored to testify before you because

you have a very important job. The Internet is

something that cuts across traditional

institutional and legal boundaries. What you do

here will throw us down one of many paths, and we

cannot know what that path will entail; only its

140

broad contours.

Three years ago, I was separated from our

political process under the belief that voting was

a simple act of individual consumer choice and as

such that I could not really make a difference.

Through discussions on the Internet, I became so

interested and engaged in politics that I soon made

it more than just a hobby; the comment threads and

forums in which I made friends and felt at home to

discuss ideas and interact as a political being.

The Internet serves this experience of

active engagement to millions of people, and this

sense of engagement, I believe, is part of what led

to record turnout in 2004. People discovered that

politics could be a participatory process.

So what, and where, is Internet politics?

Well, let\'s look at how people talk about their

media consumption and Internet habits. They say

things like I saw this on Fox News; I go to

Athletics Nation to talk about baseball; I go to

MyDD to talk about politics. This is not the

language of mass media, in which people stay where

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they are and can only choose which messages are

broadcast to them.

This is the language of place: chat,

room. On the Web, people go to places in which

their friends spend time, which is why they use

words that convey travel rather than words that

convey consumer choice. TV, radio, direct mail,

even newspapers to some extent force consumers to

act as a passive recipient of information and views

provided by others.

The Internet, by contrast, allows for the

potential for the creation of an infinite number of

safe spaces for engagement by citizens, sometimes

directly with candidates or surrogates. This

matters. It\'s not a surprise to me that moneyed

interested didn\'t make their presence felt on the

Internet this cycle. It isn\'t money that buys

attention online. It\'s trust, credibility and

ideas. Look no further than JibJab, the Website

with that amusing cartoon with Bush and Kerry

singing This Land is Your Land. The independently

created site cost a small amount of money to

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produce and was initially distributed by the

creators emailing their friends about it. Yet, it

attracted tens of millions of viewings across the

course of a few weeks.

No one bought attention for it. People

came because their friends told them they should

visit. This suggests a general principle of the

Internet: who owns the pipes doesn\'t matter

online. It\'s who you trust and who provides

worthwhile content that matters; or, content is

king.

I know there is a fear of large

enterprises able to crack the code of the Web and

use their institutional resources to corrupt the

political process. But this fear takes as its

basis an ignorance of the culture of the Internet.

Take the corporate world, an analogue to our

political system. The recent BusinessWeek cover

story titled Blogs will Change your Business talked

about how the Internet, while an advertising

platform, is more of a space for the public to talk

back.

143

As is true for business, so is true for

politics. Just as marketing departments want to

sell product, campaigns often want to sell

candidates. But rather than solely serving as a

new vehicle for pushing product, the Internet is

generating a conversation that companies do not

control but must adapt to. Mazda learned this the

hard way, when it tried to foment positive brand

impressions on the Web by creating a corporate blog

masquerading as a genuine Mazda fans Website.

If you now do a Google search for Mazda

and blog, you will find that the first several

entries are criticisms of what Mazda did.

Inauthenticity on the Internet is easily

sniffed out by readers, by citizens on the

Internet, and companies that are most successful

online use the Internet to listen to and converse

with their customers. They do not waste time and

anger of their stakeholders by spamming them, even

with slickly produced video ads.

In other words, the fears that existing

centers of power will find ways to manipulate the

144

Internet simply do not measure up to how the

Internet has impacted one area we do know a lot

about: business. As Rick Bruner, business blog

consultant, wrote about the Mazda effort,

marketers, please, please, get the point: blogs

are about building trust, not spinning it.

Corporate America, having invested tens of

billions of dollars over the last 10 years, would

have already figured out how to influence consumers

on the Internet the same way they do over

television. But what we have seen instead is

consumers turning into citizens influencing

corporate America. The same is true for any

organized power like unions or anything else.

Given this history, why should the FEC

raise the barrier for who has a media exemption

when the harm is theoretical and the space is so

undeveloped? More importantly, why should we

default to heavy regulatory oversight in this space

that has so far brought so little corruption and so

much new involvement in politics?

The ability for anyone to operate on the

145

Internet and define their information channels

demands a relaxed regulatory regime. Otherwise,

the risk of dissuading individuals from

participating is too great.

And let me just say about that that I\'m

not talking about blogs. I\'m talking about people

who are not necessarily political. I mean,

everybody here that\'s testified before you is

comfortable with their own opinions and is

comfortable participating. There are a lot of

people on the Internet who are not, and there are

already ample barriers to talking about politics,

including harassment and other things. To fear the

threat of even asking about the question, as Marc

said, will impose upon these people a truly

chilling effect to people that are most out of the

political process.

The potential for corruption for monied

interests on the Internet is still theoretical.

Perhaps organized money will yet find its way into

corrupting the political dialogue online. But my

experience is that online citizens ignore messaging

146

they don\'t trust, no matter how slick or

expensively produced and distributed. Isn\'t it

better to wait and let the political Internet

develop before choosing to impose a regulatory

burden on the new pieces of an expanding political

class?

Thank you for allowing me this

opportunity, and I look forward to answering your

questions.

CHAIRMAN THOMAS: Thank you, one and all.

We are going to start this panel\'s questioning with

Vice-Chairman Toner.

VICE-CHAIRMAN TONER: Thank you, Mr.

Chairman.

Mr. Elias, I\'d like to begin with you.

You\'re here representing the Kerry-Edwards

Presidential Campaign. At page 5 of your comments,

you write the following: Senator Kerry co-sponsored

the Bipartisan Campaign Reform Act of 2002. He

supports that law and its objective of removing

corruption from the political process. And you go

on: He believes that BCRA can and should tilt the

147

balance of political power back toward ordinary

citizens. Nonetheless, for those like Senator

Kerry who strongly support giving average

Americans a more effective voice in the political

process, this rulemaking raises more concern than

hope.

And you go on: The draft rules published

by the Commission for consideration are more modest

in scope than some potential alternatives.

However, their adoption would nonetheless have the

potential to chill the sort of activism that had

such a positive force in 2004. Could you elaborate

on the nature of your concerns with respect to

that?

MR. ELIAS: Yes. Let me start by saying

that as you said, Senator Kerry was not just a

co-sponsor of McCain-Feingold but has been, since he

first ran for the Senate, has been a supporter of

campaign finance reform. Some of you may or may

not know that his original Senate race, he is

credited with winning largely on the basis that at

the time, he wouldn\'t take PAC money, which in 1984

148

was for people like Democracy 21 and the like, that

was the big bad guy out there.

So Senator Kerry has been, throughout his

entire political career, a champion of campaign

finance reform and, in fact, would go beyond

McCain-Feingold in supporting full public financing

of elections.

That said, one of the reasons why Senator

Kerry supported McCain-Feingold and believes was a

success is that it did take large contributions out

of the system, and it decreased the amount of

transactional money that\'s in politics. People who

give over the Internet have never met the candidate

and certainly have not asked the candidate to do

something for him. They are simply expressing

their support for Senator Kerry or President Bush

or whomever they\'re giving to, because they believe

in this person. They believe this person has the

right vision for America.

So it\'s an incredibly democratizing tool,

and we found the same thing to be true during the

campaign with respect to organizing. People who

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volunteered through the Internet, they were

volunteering not because they thought they were

going to get some job in the administration, not

because they wanted to be close to the center of action.

They were volunteering because they wanted to make

a difference.

And the concern that we have about the

draft rules, as we say, although they\'re more

modest than some other proposals, and that\'s a

point well taken, is that the very act of creating

new rules, of exempting some things as in,

necessarily creates a regime where some things are

out, and for lawyers like me and lawyers like Don,

we\'ll know the difference between what\'s in and

what\'s out.

But as Matt said, for the vast numbers of

people who simply want to participate in the

process, they simply want to help John Kerry become

the next President, those people, they don\'t know

what the extent of the media exemption is. They

don\'t even know there is a media exemption. They

don\'t know what corporate facilitation is. They

150

don\'t know how many hours a week or a month they

can spend at their company computer or at their

firm\'s computer.

They just know they want to participate in

the process. So the concerns we have are that

anything that is going to regulate in this area is

going to leave a footprint, and it is a footprint

that is going to have consequences.

VICE-CHAIRMAN TONER: So the bottom line

from your vantage point, the best course of the

agency to take is not to issue any new regulations

regarding the Internet.

MR. ELIAS: Yes; let me say that I am not

here, and you\'ll notice that the comments avoid

discussion of the Shays litigation, and I have no

position as to whether the Shays litigation does or

does not require the Commission to adopt or not

adopt; I\'m not going to get into that thicket.

VICE-CHAIRMAN TONER: From a policy

perspective.

MR. ELIAS: From a policy perspective,

that is correct.

151

VICE-CHAIRMAN TONER: Mr. Simon, I would

like to follow up. In the earlier panel, we had a

discussion about the scope of online activity by

individuals. And in a dialogue with Mr. Noble and

Mr. Morris, they seemed to agree that individuals

ought to be able to be involved in a wide variety

of online activities totally exempt from any

restriction: emails, blogging, setting up

Websites, links, republication, a wide variety of

activities, even if that activity is coordinated

with a candidate.

Do you agree?

MR. SIMON: I do. If I could just expand

on that one moment, there is something that I find

very odd about this discussion, which is that there

are people in the comments who say, well, look, if

you have to do something required by the court,

then, do that, but don\'t do anything else.

Now, presumably, if you do nothing else,

what that means is that the current law, the status

quo, remains in place. So, then, the question is,

well, what is the status quo? What is the current

152

law? And it seems to me that from the point of

view of the concerns everyone is expressing about

the potential of regulating individual activity

online, whether coordinated or independent, the

current law is far worse than what is in the

proposed registered, because the current law

arguably means that activity online by an

individual using his or her own computer experience

or services constitutes an expenditure.

VICE-CHAIRMAN TONER: Do you think we

should conclude that?

MR. SIMON: Well, I think you may already

have, with the proviso that there is a 1999

advisory opinion that says no, it doesn\'t. Now, I

think that advisory opinion is correctly decided,

and from my perspective, what the proposed rules do

really is codify that 1999 advisory opinion, and it

seems to me that people are going to be a lot

better off and have a lot more clarity and

certainty if the deregulatory posture of the

Commission regarding the Internet that was set

forth in the 1999 opinion of the Commission is

153

actually put into regulations, because it seems to

me that is moving in a more protected direction.

So its curious to me when people who are

advocating freedom on the Internet for individuals,

which is a position we fully agree with, are

arguing the Commission should not do that which

would further that position.

VICE-CHAIRMAN TONER: So you\'re

comfortable with a blanket exemption\--

MR. SIMON: Yes.

VICE-CHAIRMAN TONER: \--for individuals

for their online activity\--

MR. SIMON: Yes.

VICE-CHAIRMAN TONER: \--even if

coordinated with a candidate.

MR. SIMON: Yes.

VICE-CHAIRMAN TONER: Thank you.

CHAIRMAN THOMAS: Commissioner Weintraub.

COMMISSIONER WEINTRAUB: Thank you, Mr.

Chairman.

Mr. Simon, I don\'t think I\'ve ever heard

you say such nice things about a proposal put

154

forward by this Commission. I may not even ask you

any questions.

MR. SIMON: I welcome the opportunity to

be in this position.

\[Laughter.\]

COMMISSIONER WEINTRAUB: Mr. Elias, let me

ask you about what you actually came here to talk

about first. Then, I may ask you something else.

But I share your concern about Internet fraud, and

I\'m sure all of my colleagues do as well. Do you

have a specific suggestion for us as to what we

should do?

MR. ELIAS: I do. I would suggest that it

is within the Commission\'s power\--it\'s within the

powers enumerated in the law\--for the Commission to

advocate and seek voluntary compliance with the

law. One way in which I would recommend that you

programmatically expand what the Commission

currently does is by creating an office or a

person, and I don\'t want to get into whether it\'s

within the General Counsel\'s office, where it is,

but there ought to be someone who, if a fake

155

Website goes up, who I as a representative of a

campaign can call, and there ought to be someone at

this agency who can call the ISP, who can send a

letter to the ISP, to the Web hoster, to the

sponsor of the site.

Because very often, I will tell you, a

letter from me just saying I\'m the General Counsel

of the Kerry-Edwards campaign, most of the ISPs

want to be responsive. If there is a fraudulent

site on their Website, they want to take it down.

And there ought to be some mechanism through which

this agency can, much like you would with the FTC

or the Department of Justice, where there can be

some informal action taken short of a reason to

believe finding and a probable cause finding and

all of that, because by the time you get through

with that, it\'s going to be months and months and

years later, and the fraud will have been done.

There ought to be a way that this agency

can work with campaigns to proactively reach out to

the responsible actors in the online world to try

to deal with these problems.

156

COMMISSIONER WEINTRAUB: We\'re working on

that months and years problem.

MR. ELIAS: That\'s not a criticism, by the

way.

COMMISSIONER WEINTRAUB: I know.

MR. ELIAS: I mean, the system takes a

certain amount of time.

COMMISSIONER WEINTRAUB: So your

suggestion is that we have sort of an ombudsperson,

who would call up the ISPs or write them an

immediate letter saying a complaint has been filed,

and, you know, there are allegations of fraud;

we\'re going to be looking into this.

MR. ELIAS: I think a letter from a

Federal agency to a company that hosts Websites is

going to have a real impact on whether\--and I

realize you all are not going to issue an

injunction and the like, but a letter from a

Federal agency to a responsible corporate actor

saying hey, we\'ve received this complaint; it is

something we are looking at and something you ought

to take seriously I think would have some real

157

impact.

COMMISSIONER WEINTRAUB: Thanks. I think

that\'s a very positive suggestion.

Let me ask, actually, anybody who wants to

about spam, political spam. Nobody likes spam. I

know I don\'t. We had, as I\'m sure at least two of

you know, maybe more, we have on the books a

regulation passed before I got here that says that

when someone sends out 500 substantially similar

emails advocating the election or defeat of a

clearly identified Federal candidate, that requires

a disclaimer.

Along with my colleagues, I looked at that

provision when we were doing this and I said, you

know, I know people; I have 500 names in my address

book. I know plenty of people who do, and it seems

to me this is a bad regulation, because anybody who

got excited about the election anytime\--it doesn\'t

have a time limit on it\--and just sort of blasted

an email out to everybody in their address book

saying please vote for my favorite candidate could

inadvertently be in violation of the law, and I

158

don\'t think that was anybody\'s intent.

So we tried to narrow that provision down

by adding on this requirement that it be a paid

list, and we\'ve gotten some comments saying, well,

that\'s not a good idea, either. Should we do

anything? Should we do something else? Anybody

who wants to comment on this? Because what we\'re

trying to do is to protect people here in their

normal emailing.

MR. SIMON: Well, from my point of view, I

think it is a step in the right direction. I mean, I

think the underlying concept is that there should

be a disclaimer on unsolicited email. I think in

its first iteration of the rules, the Commission

was suggesting a very large number of emails as

sort of a proxy for the recipients having not

solicited.

For the reasons you indicate, that is an

imperfect analogy or an imperfect proxy, and I

think the better approach is to say when the email

sender is sending the email to a list that he\'s

purchased, it\'s reasonable to conclude that the

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email is unsolicited and therefore should fall

within the disclaimer requirement.

MR. STOLLER: I\'m not a lawyer. That\'s

pretty obvious. I do know that when you buy a

list, I think there are basically natural

architectural constraints on what you can do with

email. If you buy a list, and you send out email

to that list, you typically don\'t perform very

well. Your read rates are bad.

More importantly, if you send out an email

to a list that you\'ve paid for, people will

complain to AOL, to Yahoo, to, you know, these

providers, and then, they will not accept email

from your server in the future.

So actually, I don\'t necessarily think

that it\'s up to the FEC to prevent spam, because

there are ways that, you know, people protect

themselves. And this may speak to your, you know,

your purview here: spam is a larger problem than

just political spam, so maybe there are larger, you

know, political, there needs to be a larger

political debate about the nature of spam and what

160

the government\'s role is in regulating it before it

comes, you start to look at political spam as a

problem.

COMMISSIONER WEINTRAUB: But what can we

do to make sure that we\'re not inadvertently having

individuals in violation of the law?

MR. ELIAS: I would offer one simple

solution, and this may be an act of simplification.

Every Federal political committee I know puts a

disclaimer on all their email. We don\'t count

whether we\'re at 499 or 501. If you get an email

from any of the Federal political committees, they

include who\'s the sponsor of it. It\'s often

repetitive, because it\'s in the URL from who it

came, but they put it anyway.

I think if you require it of Federal

political committees but exempt individuals, you

know, individuals are not out there buying lists of

email to send out. I mean, they don\'t have the

capacity; I mean, Matt can speak to this better,

but, you know, they don\'t have the capacity to send

out thousands and thousands of emails the way that

161

political committees do.

MS. DARR: The suggestion that was made

earlier of also including a monetary threshold,

that you had to spend at least \$500 seems to me a

good addition to what you\'ve already done.

CHAIRMAN THOMAS: Thank you.

Next, we go to Commissioner Smith.

COMMISSIONER SMITH: Thanks, Mr. Chairman

and guests. If we can figure out a way to stop

spam, all six of us are going to be elected to the

U.S. Senate with landslide margins.

\[Laughter.\]

COMMISSIONER SMITH: Mr. Simon, I had a

couple of questions I wanted to ask you about your

comments, your written comments. You write on page

16 that we should think about a \$25,000 exemption

for spending by an individual on production costs

to be disseminated by the Internet, and it would

only be a contribution or expenditure in excess of

\$25,000. What would be the statutory basis for

doing that?

MR. SIMON: Well, the statutory basis for

162

the proposed rule, I take it, is the 431(8)(B)(ii),

I think it is, which is the volunteer exemption,

and I think to the extent that you are proposing

that computer equipment and services by an

individual who\'s serving in a volunteer capacity by

posting on a Website constitutes a form of\--whatever he\'s

spending for the equipment, computer

and services should be included within the

volunteer exemption, and this is sort of a next

step of kind of broadening the circle of what

additional expenditures fall within that exemption.

COMMISSIONER SMITH: Meaning something as

high as \$25,000 would work still. The current

exemption is much, much lower, you know, out of

pocket costs.

MR. SIMON: Well, let me just point out

that we were careful. I mean, we thought about

this a good deal in our written comments, and we

were careful to say we\'re not sure that the

Commission actually does have the statutory\--

COMMISSIONER SMITH: That\'s my next

question.

163

MR. SIMON: Yes.

COMMISSIONER SMITH: So what\'s your

opinion? You\'re here as an expert witness. Do we

have the authority to establish that \$25,000

threshold?

MR. SIMON: I actually, honestly don\'t

know, in the sense that I guess I would say

probably not, and it\'s probably in the category of

what you should ask Congress to do.

COMMISSIONER SMITH: So your position is

that we have to regulate that until such time as

Congress chooses to act on our recommendations,

which they do so quickly every year?

\[Laughter.\]

MR. SIMON: Well, I think you can issue

the regulation you are proposing to issue, which is

to exempt computer services and equipment, because

I think that is that much closer, and, you know,

then, you have the usual tools of administrative

discretion and enforcement discretion in the

interim period when Congress is considering your

recommendation.

164

COMMISSIONER SMITH: Let me ask you

similar questions on page 13. You suggest we

should consider whether we have the authority to

exempt a category of blogger corporations to solve

that problem of folks incorporating, so let me ask

you the question, again, do we have that authority,

or do we have to ask Congress?

MR. SIMON: I think the analogy there is a

step the Commission has recently taken in terms of

the treatment of LLC corporations, where the

Commission did basically create an exemption to

441(b) for certain types of corporations.

And I think, you know, based on that

rulemaking and that authority, I think this is

closely related and also in the way we frame it

closely related to the volunteer exemption for

which there is a statutory basis, because it\'s sort

of\--it\'s really couched as if you have an

individual or a small group of individuals who are

operating under the color of the volunteer

exemption, but as many people have noted, they may

want to incorporate for liability purposes; you

165

know, we suggest on a modest basis they should be

allowed to do so.

COMMISSIONER SMITH: How about a wholly

owned Subchapter S corporation? One person owns it

like a sole proprietorship?

MR. SIMON: You\'re testing my knowledge of

corporate law at that point. I don\'t know. I

don\'t know.

COMMISSIONER SMITH: Okay; thank you. I

appreciate your answers there.

Ms. Darr, I wanted to know if you wanted

to respond to a couple of things. I\'ll throw out

three different arguments on your proposal that the

press exemption should be pretty narrow. First,

Mr. Moulitsas noted that they, you know, the

mainstream press, the traditional press is often

inaccurate and biased and so on as well, and you

seem to note that as well yourself in your

comments.

A second point that\'s been raised, and I

think it is raised in your comments, too, Mr.

Simon, is it\'s a concern when these folks are

166

actually raising folks for a candidate, though.

But, you know, here is a copy of the\--this is my

local paper. They just had an article here. This

is in the Philadelphia Inquirer, in which they very

clearly, with a pretty good pitch, urge people to

give money, and they list the Website for a group

called ChristianAlliance.org, which is a liberal

sort of faith-based group.

And it came to mind, because the

Philadelphia Inquirer, I think Commissioner Toner

has a copy of a piece that they put out back on, to

be precise, just over one year ago on June 16,

2004, in which they, in their own words, outline a

strategy to make sure Pennsylvania lands in the

Kerry win column and then give information on how

you can donate to the Kerry campaign. That\'s the

second point.

And the third point would be\--so those are

two issues, I mean, are these really different?

And the third issue would be one that was raised in

written comments submitted by Glenn Reynolds of

Instapundit and I think a couple of others saying,

167

you know, if you\'re really concerned about eroding

press privileges and protecting sources and so on,

nothing is more certain to do that than telling

average citizens this only applies to a little

narrow little group of people; it doesn\'t apply to

the rest of you, which is the exact opposite of

your argument, and I wonder if you would address

kind of all three of those points.

MS. DARR: Thank you. I appreciate the

opportunity to address those.

My purpose in setting forth a discussion

about the media exemption was not to say that, you

know, some bloggers, all bloggers, don\'t deserve

it. My goal in doing that was to set forth the

inherent tension in the Act between the media

exemption and limiting corporate contributions and

large individual contributions. It was never an

intention to protect old media, who can protect

themselves. It was never an intention to say they

are not biased. Clearly, they are. It protects

all of them.

COMMISSIONER SMITH: We\'re out of time, so

168

I don\'t want to go beyond that. But let me make

the same point I made earlier: you know, the

intention may not matter. You\'re arguing that we

should define the press exemption rather narrowly

and basically to apply to traditional old media.

Whatever reason you might have had for wanting to

do that, what are the effects of doing that? Isn\'t

that the question?

MS. DARR: I don\'t think you can do that,

but I think the statute was written 30 years ago at

a time when none of us ever contemplated that

anybody and everybody could be media.

So I think you\'re left with this tension

of how do you deal with this. I think the

legislative history and the Commission\'s advisory

opinions point in the direction that the bloggers

will get the media exemption. But that exemption

is so broad that within it, you can do virtually

anything, act in a way that would be coordinating

with candidates. And on the other hand, you

certainly don\'t want to restrict the press and say,

you know, you can\'t advocate a candidate\'s

169

election, you can\'t give detailed instructions in a

newspaper of what to do in an election. You have

to give them unfettered freedom.

COMMISSIONER SMITH: I\'m out of time, Mr.

Chairman, but if we get it around for a second

round, I may come back to you. I\'m looking at your

comments on the next to the last page in which you

write: The class of bloggers entitled to be treated

as 'news media'\--and thus exempt from most campaign

finance laws\--must be limited. Secondly, the FEC must

make clear that bloggers cannot wear two hats

simultaneously: that of journalist and that of partisan

activist. As opposed to the Philadelphia Inquirer,

I assume, so I will try to give you time to follow

up on that.

MS. DARR: I would like to back to that.

COMMISSIONER SMITH: If the Chairman wants

to give me a minute now or two, I\'ll leave that to

him.

CHAIRMAN THOMAS: Let\'s let everybody get

their first round in, and we\'ll be happy to let you

take that up when we come to the next round.

170

Commissioner McDonald.

COMMISSIONER MCDONALD: Mr. Chairman,

thank you. Carol and Marc and Don and Matt, many

thanks for coming. This is an excellent panel, as

was the first one.

Since I never make opening statements\--I

did that many years ago; I gave that up, but just a

few observations about what\'s been said so far. I

couldn\'t help but think back. I agree, certainly,

with my good friend Marc Elias about Senator Kerry

and his opposition to PAC money, but I don\'t think

he followed through on the public financing this

time. I didn\'t want to bring that up, because I

thought that would be inappropriate.

I gather, Matt, in relation to Mazda, the

blog is in the blog of another; is that kind of

what you were telling us, that where one blog

impersonated Mazda; I think that is a good point

you made about that.

Now to serious stuff: the Tillman Act was

the first that really got to the issue at hand, and

there was the Corrupt Practices Act, I gather, of

171

1925, the Taft-Hartley Act in the forties. I want

to just ask, let me start with Marc. I will try to

cover both sides. But, Marc, in relationship to

Carol\'s point, which is kind of really the

fundamental point for some of us; I can\'t speak for

all my colleagues, but I find it more compelling

than the story about people who do not know about

the law, because I think there is a great number of

those, and I am very empathetic.

But what is your response to Carol\'s

opening statement about the Tillman Act and

basically being on the books, in essence, for 100

years since Roosevelt first advocated it sometime\--

MR. ELIAS: Yes, I have actually a

different take at this, which is probably not

consistent with either side on this, which is I\'m

not so sure that opening the media exemption wider

is the way to get at this, because it\'s still going

to leave the question of, okay, which blogs are

media exemptions, and what if you\'re not a blog;

what if you just have a Website? And what if you

just don\'t have a Website, but you post on someone

172

else\'s Website?

To me, the issue is you ought to just not

regulate the Internet. I mean, it\'s just that

simple. I mean, I\'m actually sympathetic at some

level to the argument that once you start tinkering

with the media exemption, it becomes sort of a

weird place, where do you draw those lines. And to

me, the issue is not are bloggers members of the

media, because presumably, some large number of

them are. Some large number of people who don\'t

have blogs but have\--and I don\'t know the technical

term but just have a Webpage, they may be.

And I think that the problem just is sort

of delving into that. To me, there just wasn\'t a

problem last cycle that was discernible. Maybe it

was happening and just wasn\'t discernible, but

there was not a discernible problem that the

Internet was being abused with large corporate

money or any corporate money. I just\--

COMMISSIONER MCDONALD: Marc, can I

interrupt you on that point?

MR. ELIAS: Yes.

173

COMMISSIONER MCDONALD: I think that is an

excellent point. I gather, though, that the

testimony has been today that the Internet is

growing by leaps and bounds. That is what we are

told. And there has to be a reason for that, and

I\'m assuming that the reason in part is because

it\'s an effective way to get to folks, and I think

that\'s all perfectly permissible.

The issue is much more narrowly defined

for some of us, at least, which is the question

isn\'t that so much as it is a question of the money

in relationship to whether it goes back to Carol\'s

opening statement about corporate and labor money.

If the Steelworkers wanted to spend \$20 million on

the Internet, your position would be that\'s not a

problem, even if they took it out of general

treasury money.

MR. ELIAS: What I\'m saying is if we get

to a place in American politics where a union is

going to spend \$20 million on the Internet, this

agency will still be here, and Congress will be

here, and at that point, you will have an actual

174

set of facts against which to regulate.

What I am saying is right now, you are

hypothesizing a set of circumstances and trying to

draft regulations to anticipate what is going to

happen. Two years ago, I didn\'t know what a blog

was. So, you know, just to speak for myself, I

would have been at this rulemaking, and you would

have been regulating something other than blogs.

Now, we know what blogs, are, so now,

we\'re talking about regulating blogs. Two years

from now, the Steelworkers may be putting \$20

million into some other thing that I don\'t know

what it is yet, an Icast or a podcast or whatever

that thing is.

But my point is that I wait to see what it

is that this \$20 million is doing and then figure

out whether or not there is a background that needs

to be regulated against.

COMMISSIONER MCDONALD: Usually, of

course, we\'re criticized the other way, as I\'m sure

you\'re fairly familiar, which is we don\'t keep up

with the times, and we don\'t anticipate what\'s

175

going to happen, and we get criticized on that side

as well. But\--

MR. ELIAS: I never criticize you for

that.

COMMISSIONER MCDONALD: And you are to be

commended, by the way.

By the way, for lack of a better term, to

the normal media, I am sorry you are taking such a

beating. And I don\'t see you all in nearly as ugly

a light as apparently everybody else around the

table does.

I take your point, and I\'m glad,

Commissioner Weintraub, I think followed up on

this, this thing about fraud is very important. I

fear that it\'s going on, and I hope we can pursue

that. We saw the same thing with 9/11. We see it

with anything. Where there\'s vast sums of money

raised, people hold themselves out to be something

that they\'re not. And I appreciate you bringing

that to our attention.

MR. ELIAS: And my only point on that is

that there has been a lot of ink spilled in this

176

agency over trying to figure out what Congress was

or was not doing in McCain-Feingold and

implementing it. And I just bring to all of your

attention that this provision was strengthened in

McCain-Feingold, and to the extent that the

Commission is passing rules and is considering

rules that relate to the Internet to implement the

intent of McCain-Feingold, I would suggest this

would be a good place to start.

COMMISSIONER MCDONALD: I thank you all

for being here.

CHAIRMAN THOMAS: Commissioner Mason.

COMMISSIONER MASON: Thank you.

Mr. Simon, I take very much the view that

Mr. Elias just enunciated, that, I think as he put

it at the beginning, this is a rulemaking in search

of a problem. And you\'ve hypothesized that there

is a huge soft money loophole out there that is

just sort of waiting to be exploited. I understand

that.

But I fear if we go in and start trying to

regulate in some of these areas that we are just

177

going to do the wrong thing and consequently have

negative consequences. So I wanted to see if I can

get you to tell me anything that you have seen in

the last two years that you think was a particular

abuse that we need to stop.

MR. SIMON: It\'s not a rulemaking in

search of a problem. It\'s a rulemaking in response

to a court order. In other words, what started

this rulemaking is the decision of the district

court that exempting the Internet from the term

public communication was inconsistent with the

statute.

Now, I think, as I said in my opening

statement, the Commission has to fix that problem.

That is an analytically different problem than

whether it has to change its regulations regarding

what\'s a contribution or expenditure. The issue

addressed in the court case was a narrow issue in

the sense that what the plaintiffs there said was

that by exempting the Internet from the term public

communication, it in effect exempted all activity

on the Internet from the Commission\'s rules

178

regarding coordination, which meant there could be

an unlimited degree of coordination between any

spender, including a corporate or union spender,

and any candidate or political party for any

activity over the Internet.

COMMISSIONER MASON: I understand all of

that. What happened last time that we want to

stop? Because that will help us craft the

regulation that you and I agree may be mandatory

for us to craft.

MR. SIMON: Well, I mean, it\'s not only a

question of what happened last time. It\'s a

question, as the Supreme Court has said a number of

times, of whether there should be prophylactic

rules in place to prevent abuses from occurring and

that Congress has the authority to legislate, and I

think the Commission has the authority to make

rules that are designed in part to forestall

problems that may occur in the future.

Now, there is testimony in the comments,

and the one that sticks in my mind is a comment

which we quoted in our comments by Michael Bassik,

179

who is going to be on one of the panels tomorrow;

who is a well-known blogger who said the use of

political ads on the Internet is exploding, or it\'s

going to explode in 2006.

There are comments in Carol\'s written

testimony about the factors that are going to lead

to a very probable expansion of the use of paid

political advertising on the Internet. It\'s

becoming more familiar; consultants are becoming

more familiar with it; more and more people are

going to the Internet for their news and

commentary. The Internet is\--let me just finish

the thought.

So from our point of view, when you have

paid political advertising on the Internet that can

be coordinated with a candidate and funded with

soft money, that\'s a problem the Commission needs

to address.

COMMISSIONER MASON: But I take it that we

didn\'t see big problems in the last cycle.

MR. SIMON: No.

MR. ELIAS: And I would posit there\'s a

180

reason for that, if I may. You know, there are a

number of tools available to the General Counsel\'s

office if we saw that, and lawyers like me who are,

after all, asked to find every legal way, every way

within the law, to finance public communications,

whether on the Internet or otherwise, there is

still the definition of contribution. There is

still the question of whether or not it would be

considered to be soliciting soft money if a

campaign were to request such a communication be

made.

You know, we wound up with the corporate

facilitation rules largely because Prudential had a

big complaint against it, and the General Counsel\'s

office took the tools available to it then and went

aggressively afterwards. I have no doubt, and I

had no doubt when I was in the thick of advising

the Kerry-Edwards campaign that if I let my client

go to a labor union and solicit a \$20 million

public communication on the Internet program, you

know, I\'d be hearing from Larry Noble shortly.

There would be a complaint filed, and the general

181

counsel\'s office wouldn\'t sit here and say, gee,

there\'s nothing we can do about this.

So I\'m not sure the situation is quite as

dire as\--

MR. SIMON: Well, if I could just respond

to that, I do think the Commission affirmatively

created an exemption in the rules that were struck

down in the Shays case, and I think that exemption

would protect that kind of activity.

COMMISSIONER MASON: Good to know.

MS. DARR: Could I add one more thing on

this? And that is with respect to soft money. In

1976, which was the first election after the

passage of the FECA, there was absolutely no soft

money spent under the Act. In 1980, there was \$1.5

million spent by the Democrats; \$3 million spent by

the Republicans. Exact same regs; exact same

statute. That little, tiny loophole over 20 years;

in 2000, how much was spent? \$200 million? \$300

million?

So just because it wasn\'t spent in the

first election doesn\'t mean it\'s not going to grow

182

exponentially.

MR. STOLLER: Can I\--

COMMISSIONER MASON: Go ahead, Matt.

MR. STOLLER: I\'m sorry; I feel like I\'m

speaking a different language, because this just

strikes me as a very difficult process and a

backwards process in a lot of different ways. I

would encourage you to be creative in how you

approach regulation of this space and take

advantage of the natural architecture of the

Internet; for instance, you could require political

committees to, if they advertise, show all, you

know, create a special Web page where they list all

of their advertisements, so that people could go

and look at them and criticize them.

You know, don\'t just look at public

communications as communicating from aggregated

centers of power out to the people. Look at public

communications as a conversation, so the Internet

is not growing because that\'s how you\'re reaching

people. The Internet is growing because people are

going to the Internet because that\'s what they

183

want. They want that engagement.

So try to be really creative in how you

think about helping the public regulate its own

communications. That\'s what I would encourage you

to do here.

CHAIRMAN THOMAS: Thank you.

I\'ll take a run here. We have indicated

that we are contemplating bringing within the

coordinated communication rules these ads where

someone pays for them to be placed on someone

else\'s Website. I am just curious quickly, if you

all could sort of give me a sort of yes or no, do

you think in that light that we should somehow make

a clarification that if they\'re placing ads on some

other Website where that other Website ordinarily

charges for that kind of advertising space, but in

this case, that entity decides not to charge and to

give that opportunity for the ads to be placed for

free, for, in other words, for less than commercial

fair market value, that we should also be willing to

say that that would be a form of an in-kind

contribution by that Website that is offering that

184

Internet space for free?

Can I run down the\--or anybody want to\--go

ahead, Don.

MR. SIMON: Yes, I think that is

appropriate, and I think that should also apply to

other in-kind payments for Web space like a swap of

space or other kind of in-kind payments.

MS. DARR: It seemed to me that what you

all were trying to do in this, and I\'m just

speculating here, was that when you get into the

issue of paid advertising on somebody else\'s site,

that is the kind of activity that suggests serious

political operative kinds of activities.

And it seems to me the thing everybody

agrees on is that the sorts of activities that

ordinary citizens would do, including net savvy

citizens, there ought to be some threshold beneath

which you ought to be able to operate without

worrying about the statute. Then, you get into an

area where you ought to have some regulation, and

it ought not be just the kind of activity, but it

ought to have a monetary threshold on it also.

185

MR. STOLLER: What if a political

committee says to its donors or stakeholders, hey,

create an ad or create a graphic or create a piece

of video, and then, people do? And they put them

up on a Website, or let\'s just say that people do

it anyway, and a political committee adopts that as

its logo or whatever.

And then, somebody else takes that, a

blogger, or it doesn\'t really matter, and puts that

on their own space. How would you\--I mean, how

could you possibly regulate something like that?

How is it possible to do that? At what point does

this become the talking points or the property of

the political committee as opposed to communication

among citizens through the vessel of maybe a

political committee?

CHAIRMAN THOMAS: No, I get your point,

and I think we would certainly want to try to make

a distinction between what some individual puts up

on a Website versus what some large, widely-seen

Website that as a regular course of business

provides Web space. Think of Google\'s ad space or

186

something if they were going to provide that space

for free where they usually would charge. That\'s

kind of what I\'m getting at. Should we try to also

deal with that issue?

MR. ELIAS: At the risk of turning my

campaign in, but I\'m going to bring all the other

campaigns along with me for the ride\--

\[Laughter.\]

MR. ELIAS: It wasn\'t a secret.

Amazon.com, during the primary, put on their front

page links to contribute under \$200 to everyone

running for President. And by the way, I mean

everyone. I mean, there were lists of candidates

that I had never heard of before running from

parties I had never heard of before. There were

untold numbers of lawyer hours killed trying to

figure out whether this was a voter guide, whether

it was a this, whether it was a that. Why can\'t we

just say that if Amazon wants to list all these

candidates and let people link to them that even

though Amazon normally charges for their links, no

doubt, that somehow, this was just not corrupting

187

the process?

I mean, they were soliciting contributions

for everybody, and nobody could give more than

\$200. I mean, that\'s the only example, the only

example that I know of last cycle of a large

corporate enterprise being involved in giving free

space to campaigns. And frankly, it was the best

thing for democracy that a corporation has done for

a long time. I mean, Amazon, I think, is to be

commended for that.

MR. SIMON: If I could just respond to

that, I guess the question would be, then, what if

Amazon listed only Republican candidates?

MR. ELIAS: If Amazon got into the

business of only listing Republican candidates,

there would be two potential courses of action.

Number one, I know how to find Mr. Norton\'s office,

and I would file a complaint, as I did against Wal-Mart in

another press exemption case, and there

would be an opportunity for the Commission\'s

lawyers to see whether there was a way to deal with

it under existing law, and if there was not a way

188

to deal with it under existing law, and it became a

pervasive problem, then, this Commission could at

that point say okay, now, we know what the problem

is. We now have the following sets of facts

against which to craft regulations.

CHAIRMAN THOMAS: Well, I will go back to

some of the statistics that I noted at the outset,

and as I said, I\'ll make these available for the

record, but they\'re sort of listed according to

just the big ones, and one, the payment is to

America Online for \$260,000 for email acquisition.

That is just an example.

And that happened, as I understand it, to

be payment made by the RNC. There\'s a big payment

by Bush-Cheney; there\'s a big payment by the Kerry

campaign, \$70-some-thousand to Crossroads

Strategies for Website services. I guess my point

is just there is the potential for some big

payments that deal with apparently Internet

communications, and I\'ve sort of been scratching

at, you know, do we need to be a little bit more

careful.

189

If we\'re going to try to deal with this

concept of bringing appropriate things within the

coordination rule, do we need to also maybe deal

with email services on behalf of, say, a particular

candidate coordinated with a particular candidate

or, say, coordinated with regard to a political

party, the RNC, \$260,000 worth of services? That

has sort of been the focus of my questions, and so,

it\'s helpful to sort of get a sense from you all

how that fits in.

We have gone through the Commissioners.

Mr. General Counsel?

MR. NORTON: I\'ll be brief. I didn\'t

think we\'d be talking about fraud on the Internet

today, but as they say, you brought it up.

\[Laughter.\]

MR. NORTON: And I wanted to just follow

up to clarify my own understanding of what you\'re

concerned about.

You\'re right, absolutely right, that

McCain-Feingold addressed fraudulent solicitation

for the first time, and it put it in the statute,

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and it prohibited misrepresenting who you\'re

raising money for. But although you\'ve presented

to the Commission as something it ought to do, and

it\'s, I think, a worthy thing to think about is

writing letters to the ISP.

The concern I\'ve had as I looked at this

issue is that while the statute provides the

Commission with enhanced authority, it lacks

authority to seek the kind of relief that might

deal with this kind of scheme. Because they\'re so

ephemeral, sending out a notice that we received a

complaint and requesting responses to RTB and

sending out a probable cause is not going to do it.

What might provide some relief is seeking a

temporary restraining order or an asset freeze or

granting a receiver the ability to take control of

the Website.

That is not built into the statute. Do

you think that there is more the Commission can do

as a regulatory matter here, or do you think there

is something that Congress ought to do to allow the

Commission to implement that authority or both?

191

MR. ELIAS: I think the reason why the

comments were drafted the way they were was to

simply suggest that all of the brain power that is

going into figuring out what the Commission can or

can\'t do regarding Weblogs ought to go into

thinking about this question. So I came with one

proposal today, but it was not to suggest that I

have the answer to the question.

You know, I thought that the Commission

did an admirable job, for example, dealing with

administrative fines, you know, with the sort of

ticket process. That\'s not something that,

frankly, I would have thought of. But a lot of

smart people sat around and said, okay, how do we

make this system work better? And I\'m simply

suggesting that there ought to be some way that the

Commission looks at that provision of McCain-Feingold and

says, okay, how can we better

implement this? Maybe it\'s a regulatory fix; I

don\'t know. Maybe it\'s what I suggest about having

someone who just contacts them informally. I don\'t

know. But I do think it\'s a place where the

192

Commission ought to spend time and attention.

MR. NORTON: Thank you very much. Thank

you, Mr. Chairman.

CHAIRMAN THOMAS: Mr. Pehrkon.

MR. PEHRKON: Thank you, Mr. Chairman.

Welcome to everyone on the panel.

I have a question for Mr. Stoller, and the

question concerns BOPNews. Could you describe to

me what BOPNews is and what they do?

MR. STOLLER: Sure; it\'s a blog, which

means it is a diary in reverse chronological order.

It has comments, which means that anybody on the

Internet, can, you know, post commentary about what

we talk about, but that they\'re in a less prominent

position if they are not granted certain

administrative privileges.

And then, there are a series of people who

have administrative privileges who can post

thoughts, reporting, pictures, audio, video of

whatever they want to, and the theme that we

encourage people to take is looking at the

transformation of media in politics because of

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technology. And so, that\'s what it is.

MR. PEHRKON: How are you guys funded?

MR. STOLLER: Well, actually, that\'s a

good question. There is a company called Sky

Builders. It\'s just a guy who does a lot of open

source software development who lent us the space,

the Web space. And then, we do the design work and

the tech work, and so, it\'s not a very expensive

site to have up.

MR. PEHRKON: What\'s the annual operating

expenditures you have here?

MR. STOLLER: Oh, annual operating

expenditures? You know, since it\'s just sitting on

his servers, it doesn\'t cost him anything, because

he would have those up anyway. For us, you know,

for the actual mechanics of the site, basically

nothing. For travel, for other things that, you

know, creating the content, you know, that costs

some money, but it sort of varies. I mean, if you

want to travel to a convention, you know, that

might cost money, but that\'s not, you know,

expenses in terms of setting up a blog.

194

MR. PEHRKON: Now, you don\'t have full

time employees, I gather.

MR. STOLLER: No, no.

MR. PEHRKON: I was just trying to get a

sense of what the organization was, how you operate

it, how you work\--

MR. STOLLER: Right.

MR. PEHRKON: \--and how content is

provided.

MR. STOLLER: Right. There are very

popular blogs that cost nothing to operate, and

then, there are all sorts of weird ways of

organizing\--if any you have college age children,

you can ask them about it\--

\[Laughter.\]

MR. STOLLER: \--that have nothing to do

with blogs or, you know, email, and I mean, I don\'t

understand them, and good luck regulating them.

\[Laughter.\]

MR. PEHRKON: The last part of that is how

popular is this site?

MR. STOLLER: Our site gets around, I

195

guess, around 3,000 visitors a day, but there\'s a

lot of ways of measuring popularity.

MR. PEHRKON: Most favorable is always a

good way to present yourself.

MR. STOLLER: Excuse me.

MR. PEHRKON: The most favorable light is

always a good way to present.

MR. STOLLER: Well, everybody likes us.

\[Laughter.\]

MR. STOLLER: Idea transmission is

different from how much traffic you have, so

eventually, some of the things that you think of or

work through, some of those problems, six months

later, maybe you work it into more popular sources

or maybe work into the mainstream media, and there

is an idea transmission process. It\'s a very

complicated system, and I don\'t think anybody yet

understands. It\'s a whole new world, and, you

know, blogs link to each other; they work with

email lists; they work with social networking

software, instant messenger, sort of what\'s called

the grey matter of the Internet.

196

And it produces this really interesting

and weird world, which has some elements of media

and has some elements of space, and, you know, it\'s

really hard to put all of this together and figure

it out. I mean, so, that\'s, you know, some things

cost money, some things don\'t, but there\'s no clear

correlation between money and influence at this

point.

MR. PEHRKON: I see my time is up. Thank

you.

CHAIRMAN THOMAS: We have I guess

technically about 10 minutes left, and we\'ll go

sort of in the same pattern in reverse order, which

means I get to ask a question quickly.

I just wanted to point out that in terms

of developing some sort of distinction about who

maybe crosses the line over into being a political

committee or maybe the line about who crosses over

into the media exemption, we, I think, have been

toying with the idea of expanding the individual

activity allowance so broadly that in many senses,

many respects, the Internet community would be very

197

assured that they wouldn\'t fall under any of those

concerns or the restrictions that apply otherwise.

But it\'s interesting to me: I mean, if

you look at the Internet as something that millions

of Americans can and do use, and it\'s very, very

inexpensive, I start to note that, you know, all

along, the ability to put out fliers using a

photocopy machine has been there. Just for

pennies, you can put out a lot of fliers and hand

them out at a lot of shopping malls and in

neighborhoods.

We came across fax technology a few years

ago. Still, it costs, but it\'s relatively

inexpensive. Mass mailings, you know, you\'ve got

to pay for postage, but still, I mean, you can

probably, on your own, just using cheap paper and

envelopes and just the cost of a stamp, you can put

out a bunch of mailings at maybe around 40 cents a

mailing. Still relatively inexpensive.

Now, we\'ve got this new, cell based

technology where all of a sudden, the ability

through the cell system to send text messages or

198

maybe even pictures, or now, we\'re starting to get

streaming video you can send through a cell phone.

I am just wanting to get a quick reaction

from you. If we go down the road of expanding the

individual activity allowance, all of those

opportunities are also something that would fit

within that, because you\'re talking about what

individuals do basically using their own

facilities, their own equipment, and so on. So, is

that another argument, maybe, for going down that

road, expanding the individual activity allowance,

whether it\'s done in coordination or independently?

Is that a good way to handle all of this down the

road?

MR. ELIAS: I would say very, very

quickly, and to tie something you just said to

something that Matt said, if there are things that

Matt doesn\'t know, he can\'t explain, then, that

actually tells you that we actually don\'t know what

this road looks like.

So my suggestion is why don\'t we walk the

first mile of the road, sort of figure out where we

199

think it is going; then, we will have an idea

whether this is a bumpy road, a wide road, a well

traveled road, or just a path in the woods. But at

that point, you\'ll have a much better sense of kind

of what the road is, so before you say what the

speed limit on the road ought to be, to continue

this analogy, I just suggest we travel a little

bit.

MR. SIMON: If I might, and this goes back

to an important question I think Commissioner

Weintraub asked the first panel, I think everybody

agrees that\--on the end point here, which is that

the campaign finance laws should not be applied to

individuals operating on their own Websites,

setting up Web pages, setting up blogs, running

blogs. That activity should not be regulated.

The question is how do you get there, and

which exemption do you apply to take that activity

out of the regulation? And there are two

candidates: one is the individual volunteer

exemption; the other is the press exemption. From

my point of view, it is much better to go down the

200

road of the individual volunteer exemption, along

the lines of the proposed rule, because I think it

operates on this very fundamental level of saying

that the money that those individuals are spending

on computer equipment and services are not

expenditures. Therefore, they are not regulated

for any purpose. They don\'t have to be disclosed;

there is no disclaimer requirement, and they don\'t

tally against the \$1,000 threshold for political

committee status.

So I think it is a very powerful way to

accomplish the goal of taking all this activity out

of the act.

MS. DARR: I\'d like to agree with that.

It seems that where you set that threshold, you\'ve

got a balance between wherever your threshold is.

Beneath that threshold, you will have no disclosure

whatsoever. So you don\'t want to set it too high,

you know, \$50,000 in a way that is not consistent

with the rest of the Act. But you do want to set

it high enough where ordinary people spending their

own money in politics just don\'t have to worry

201

about these arcane, complicated issues that we\'re

talking about now.

CHAIRMAN THOMAS: Let me move on.

Commissioner Mason.

COMMISSIONER MASON: Ms. Darr, I know

you\'ve gotten a lot of grief about your defense of

the MSM, I guess is the term.

MS. DARR: Yes, I have.

COMMISSIONER MASON: But I want to suggest

that I think part of the reason is a lot of us kind

of don\'t understand your point or your concerns, so

I want to probe it a little bit and first starting

from the Internet and one of the first major

Internet decisions, which was about protecting

pornography, of all things: the Supreme Court

celebrated the fact that on the Internet, everyone

can be a publisher, and they said this is a great

thing.

And a lot of us looked at it, and we say

this is a great thing. So from the supply side, if

you will, what is the problem if lots of the things

on the Internet are judged to be publications, just

202

like traditional?

And from the other side, you know, we look

down; General Electric, which may be, what, the

second biggest corporation in the world owns, you

know, big media; Cap Cities, Disney, Murdoch, Time-Warner; I

mean, you know, these are\--if you want to

talk about holes in the corporate prohibition,

these are huge. And as you have suggested, they

are limited in some ways by some professional

standards, but what we\'ve heard from the Internet

people is you have not only the sort of

professional obligations of a lot of the sites but

their credibility; in other words, the social

pressure within the Internet itself to police

activity.

So I guess I just don\'t understand what

you\'re concerned about losing by a broad expansion

of the media exemption to Internet activities.

MS. DARR: Here is what I am concerned

about: I have been involved in politics for over

30 years, a large part of that time as a campaign

finance lawyer, and I have seen every single

203

loophole that can be exploited will be exploited.

You know, I have done that myself. And I have seen

up close the corrosive influence of big money, not

just corporations: unions and individuals.

The whole purpose of campaign finance

regulation is to try to limit that corrosive

influence. And with regard to the media exemption,

that is just such a wonderful exception; it is just

an extraordinary provision that allows the holder

of it, the media, to be free from FEC regulation.

And if everybody has that exemption, then,

the campaign laws that we\'ve all operated under for

30 years just crumble. If you can\'t regulate the

big stuff, there is no point in regulating the

nickel and dime stuff. So I do worry about the

integrity of campaign finance laws, and I simply

don\'t see at this point any way how you preserve

it, because I think you do have to give a large

number of these bloggers the media exemption, and I

think we\'re all going to have to go back to the

drawing board and revisit everything, top to

bottom.

204

CHAIRMAN THOMAS: Commissioner McDonald.

COMMISSIONER MCDONALD: I\'ll pass, Mr.

Chairman.

CHAIRMAN THOMAS: Commissioner Smith.

COMMISSIONER SMITH: Mr. Chairman, I just

want to make a quick point before we close out the

morning. A couple of points that have sort of been

talked about, the big problem being paid ads, which

puts a real emphasis on that kind of notion,

coordinated paid political ads and so on. And I\'m

glad that people are saying that and taking that

approach. I do just want to point out that that

was not the lawsuit; that was not what Plaintiffs

Shays and Meehan argued in the lawsuit. They did

not say that the problem was that we had exempted

paid ads; they said it was that we had exempted

unpaid as well.

They even cited in support of their

argument that Congress had rejected a bill which

would have left paid ads subject to regulation.

They wanted more than paid ads to be regulated.

And I just want to make that point, because again,

205

I feel that there has been some effort since all of

this developed to say, well, well, well, well, no,

no, no. We don\'t really want to get all of those

things.

And I just\--it\'s not what they argued in

court. It\'s not what the court decision says, and

it just is not what we are faced with today. If we

can come up with a way to exempt unpaid ads, I

think that would be great, but I do want to point

out that we in another part of the law exempted

unpaid ads from electioneering communications, and

the plaintiffs Shays and Meehan sued us and said

that was an improper regulation. You can\'t exempt

something merely because it\'s unpaid, merely

because no money is spent, as was said earlier this

morning, and they won on that, too.

So I\'m not even sure it\'s a legal matter,

and I hope to get to that in one of the later

panels, whether as a legal matter, we can under

this decision exempt unpaid ads from regulation.

Thank you.

CHAIRMAN THOMAS: I\'m told Commissioner

206

McDonald\--

COMMISSIONER MCDONALD: I\'ve reconsidered.

\[Laughter.\]

COMMISSIONER MCDONALD: I just want to

give Matt a chance\--he hasn\'t had much of a chance

to speak. Is there anything you would like to add

that you haven\'t had a chance to do?

MR. STOLLER: Yes. I would like to say

something, and that is from my perspective, the

best thing the FEC does, and it is wonderful, is

the FEC donor database. What you\'ve done with that

system is you\'ve created not just transparency but

the tools for ordinary citizens to analyze the

political process. And the Internet has made, with

its natural regulatory capacities, has made that

database just so much more powerful, because you\'re

working with the Internet; you\'re working with the

dynamics of openness and transparency.

And I would encourage this Commission to

take a look at how you regulate and try to work

with the Internet and do something like that for

public communications. So rather than saying you

207

can\'t take money, saying you can take money but you

have to take responsibility for who you take it

from. That\'s what I would sort of\--do the best of

what you do that works with the Internet, and do it

more.

CHAIRMAN THOMAS: Commissioner Weintraub.

COMMISSIONER WEINTRAUB: Thank you, Mr.

Chairman. I have two questions. Matt, as a

technical matter, in your written testimony, you

referred to services such as Google AdWords and

Blogads. Can you explain how those services work?

I gather they\'re some kind of clearinghouse for

Internet ads.

MR. STOLLER: Okay; Blogads are a service

where you design\--if I\'m an advertiser, I will

design a graphic. I will upload it to a server,

and I will put my credit card information in and

check the boxes of the blogs I want it to appear on

and where I want it to appear. That information

will be transmitted to the blogger or to the

Website administrator. They will look at the ad,

approve it or not approve it. Then, the money

208

transfer happens, and that ad goes on their Website

for a week, two weeks, however long it, you know,

takes to\--however much you pay for.

Google Ads are a little different, and

BlogAds are big, so you can put a relatively large

amount of content in there. Google Ads are

different. Google AdWords are about 20 words long, and

they are placed contextually with Google searches

and with other content on the Internet but mostly

within Google search pages based on how effectively

they perform.

So if I put an advertisement in for, you

know, dolls or, you know, it can be anything, then,

that ad is going to be placed initially when people

search for dolls, that ad will appear there, and if

people click on it, then, Google will charge me for

a certain amount of money. But if it doesn\'t

perform, then, that ad will basically be removed,

and Google will say sorry, your ad is not

performing; put up another one, because you\'re

actually paying per click.

So it\'s a very different process. You

209

know, the two are very different, and with 20

words, maybe you don\'t have the ability to label

ads, you know, maybe just clicking on it is the

label. So that\'s how it works.

COMMISSIONER WEINTRAUB: Thanks; that\'s

very helpful.

Mr. Elias, do you share my concern that if

we try to allocate by time, space or any other way

for state party Websites, because I know you

represent some state parties when you\'re not

representing Presidential campaigns, that the

logistics of allocating space on these Websites is

just going to be incredibly cumbersome for state

parties?

MR. ELIAS: Yes; it\'s one thing to do

time-space on something that is static, you know, a

piece of mail. It is basically impossible to do

time space, unless we\'re now going to hire this

person, unless we are going to hire someone to do

this and query whether they\'re spending 25 percent

or more of their time if their job is to measure

the Internet site every few hours.

210

But these Websites are very, very dynamic,

especially during elections. They are ever

changing. I think you mentioned that Senator

McCain surprisingly dropped off the RNC\'s Website.

I will leave that to my Republican colleagues to

explain how that could have happened, and George

Bush popped on.

I mean, that kind of thing is just going

to happen. You\'re going to have, whether it is a

state party or a national party, you are going to

have a lot of change sometimes several times a day

of what the content of that site is.

COMMISSIONER WEINTRAUB: And do we also

have a statutory and regulatory problem in that the

statute seems to and the regulations clearly do

prohibit us from allocating the costs of, or

allowing state parties to allocate the costs of a

public communication?

MR. ELIAS: Correct, which gets to my\--I

was talking to the\--but it would be true for the

page as well; I don\'t know how you\'re going to deal

with that.

211

CHAIRMAN THOMAS: Vice-Chairman Toner?

VICE-CHAIRMAN TONER: Thank you, Mr.

Chairman. It kind of reminds me of the old whack a

mole video game that I was never very good at, but

you\'re always trying to run down that rodent that

was running around the screen, and you got points

based on how successful you were.

MR. SIMON: Is that a comment on how

McCain dropped off the Website?

\[Laughter.\]

VICE-CHAIRMAN TONER: I\'ll leave that to

your interpretation.

COMMISSIONER MCDONALD: That\'s a lot of

disclaimers, isn\'t it?

VICE-CHAIRMAN TONER: Exactly.

Two quick questions: Mr. Simon, I

appreciate your support for a blanket exemption for

individuals in terms of their online activities,

and my question is in 2000, Common Cause and

Democracy 21 submitted comments indicating that for

individuals doing online activities, \$25,000 ought

to be the threshold, that if they spent under

212

\$25,000, they ought to be totally exempt.

From a policy perspective, would you be

comfortable with that approach today?

MR. SIMON: Well, I think the proposed

rule is better, in that the proposed rule is a

blanket exemption for computer expenses and

services no matter how much money is involved. So

I think it actually goes beyond what Democracy 21

comments in 2000 had suggested.

VICE-CHAIRMAN TONER: I think that is an

important point. Do you think it\'s preferable that

we have a blanket exemption for these individuals

no matter what they happened to spend precisely so

they don\'t have to track down what they\'re

spending?

MR. SIMON: Yes.

VICE-CHAIRMAN TONER: And neither do we.

MR. SIMON: Yes.

VICE-CHAIRMAN TONER: And real quickly,

the earlier panel, we had a discussion about the

use of work-owned computers, corporate owned, union

owned, and the current safe harbor in the

213

regulations that you can do that as long as it\'s

limited to one hour per week or four hours per

month. Do you support, like the earlier panel,

expanding that latitude, making clear people can

use these work owned computers as much as they

want?

MR. SIMON: Yes, I do, and it\'s really on

the basis that Chairman Thomas indicated, that I

think the existing rule, and I think there has been

a lot of confusion about this in the discussion

over the last few weeks, because people seem to

think the existing rule is a one hour per week or

four hours per month rule, and it isn\'t. The

existing rule is so long as it doesn\'t interfere

with your normal work, and I think under that rule,

if somebody takes a computer at home at night,

assuming it\'s not interfering with their normal

work, it would be allowed under the existing

regulation, but if the Commission wants to clarify

that point, I think it would be fine.

VICE-CHAIRMAN TONER: And make clear that

as long as you\'re doing it on your own time, there

214

is no time limit on the use of work-owned

computers.

MR. SIMON: Yes.

MR. ELIAS: Could I just add that if the

Commission is going to do that, they should clarify

it? Because although you\'re right, it is only a

safe harbor, it is very easy for a partisan,

whether on my side or on the other, to find out

that someone used their computer for five hours in

a given month and file a complaint only to then be

in depositions before the FEC over whether the use

of that computer for five hours did, in fact,

interfere or not interfere.

If you\'re trying to take this outside of

the scope of regulation, I would just take it

outside the scope.

VICE-CHAIRMAN TONER: Thank you, Mr.

Chairman.

CHAIRMAN THOMAS: Anything else? Last

minute?

\[No response.\]

CHAIRMAN THOMAS: Last chance for this

215

panel?

\[No response.\]

CHAIRMAN THOMAS: Thank you very much.

Very helpful. Your commentary has been excellent.

We will take a lunch break. We will come back and

start up again at 2:30. See you then.

\[Whereupon, at 1:10 p.m., the hearing was

recessed, to reconvene at 2:35 p.m., this same

day.\]

216

A F T E R N O O N S E S S I O N

\[2:35 p.m.\]

CHAIRMAN THOMAS: Let us take up again

with our special session. This is a hearing

regarding regulation revisions in the Internet

area. Welcome back from the earlier sessions. We

have one panel of witnesses scheduled for this

afternoon.

Again, just for those who may not have

been aware of our little ground rules, we do have a

suggestion that we limit our opening remarks to

five minutes, but we\'ll be flexible with that. And

I am told that we just got word that one of the

witnesses for this panel has indicated that he will

not be able to attend, so that will leave us with

two witnesses. The witnesses we have are Dr. Peter

Bearse, and we also have John Connolly of Print

Debate Center, and we\'ve been working with

alphabetical order, so if that works for you

gentlemen, that\'s fine.

Dr. Bearse, if you would like to proceed,

please feel free. Welcome.

217

MR. BEARSE: Thank you, Mr. Chairman, and

thank you very much for the opportunity to appear

here before you and speak to such important

matters.

A couple of little addenda to the bio

statement: one reason I\'m here is that I spent many

years as a member of the Business Advisory

Committee of the Campaign Reform Project, being

involved in campaign finance reform and following

McCain-Feingold to the point where it became what

we now abbreviate BCRA. And also, I\'m a

contributing editor of Politics Online, besides

being the author of a new book.

I want to take the liberty at this moment

to mention that I made some additions and

improvements to the testimony as originally

submitted, and I hope you received the final

version.

Let me start on a more general plane. I\'m

very much in agreement with the statement of Vice-Chairman

Toner that the Commission has substantial

discretion in the degree to which it may choose to

218

act or not to act in response to the Shays court

decision. My own take on this issue is to say,

one, that the Court, in light of the increasing

evidence, some of which you\'ve heard testified to

today earlier, evidence of the lack of

Congressional intent with regard to Internet

regulation has overreached in its interpretation of

the statutory phrase, quote, or any other form of

general public political advertising, unquote.

And point two, why could it be judged an

affront to the court to remand the issue of

regulation of political speech over the Internet

back to the Congress where it belongs for

resolution politically?

Point three, I would call your attention

to the guiding principles set forth by the Center

for Democracy and Technology to help guide all of

our judgment on this matter, and I have especially

relied on principles four through seven in that

set.

Now, more specifically, the focus of any

new rules should be on the prime targets of

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campaign finance reform. Those targets are not any

one medium, whether it\'s specified or not. They

are the established political committees, large

corporations and unions, not the Internet

generally. With this in view, nearly all of the

fears of, quote, chilling, unquote, which you\'ve

often heard here earlier can chill out.

Another point: the main form of

regulation of political speech over the Internet at

this time should be by insistence upon disclaimers

and disclosure.

Point three: the proposed rule to govern

net\--excuse me, Internet political advertising

should not be adopted for several reasons. One is

that it is discriminatory as between mainstream

media and the new Internet media. A blanket press

exemption, in my opinion, should be applied to

Internet communications, and I hope we will have

further discussion of that crucial point made by

others.

In my judgment, per my earlier admonition

to tailor any new rules or requirements narrowly,

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the danger of soft money pouring into politics

through the Internet should be addressed by

focusing on Internet political PASO, you know what

the abbreviation means, PASO advertising,

contributions and expenditures by established

political party committees, big business and

unions.

Now, as an economist, and I\'m not a

political scientist or a lawyer, I recommend that

allocations in response to the questioning of

Commissioner Weintraub earlier, I recommend that

allocations be based on marginal costs, also that

those pertaining to the business community should

apply to large businesses only, using SBA criteria

to define small business as distinct from big

business.

The definition of generic campaign

activity, something you asked us to comment on, is,

in my opinion, too unsatisfactorily narrow. The

concept overlaps, after all, party building

activity and, in my opinion, this is, as someone

who has been involved for 35 years in grassroots

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political activity, party building activity is

wrongly defined as Federal election activity, but

the Commission would have to return this matter to

the Congress for clarification.

The crucial issue that I wish to conclude

with here is, for me, political volunteer activity.

This is the key issue, isn\'t it? After all, with

regard to a medium that, as many others have

remarked, is helping to bring citizens back into

the political process as prime actors, not passive

spectators; instead of threatening to, quote,

chill, unquote, or dampen the nascent positive

trends we have observed of people coming back into

the political process, the new Commission rules

should be formulated to encourage political

volunteerism.

One way not specified in my testimony but

alluded to by reference to my new book on

grassroots Republican politics would be to exempt

Internet uses or activities funded by soft money to

only those public communications that promote

political volunteerism without any PASO political

222

advertising.

I point at in the final page in my written

testimony to the need which I address in much

greater detail in my book to radically revamp the

BCRA, because after all, as we have seen in the

last election, money will always find a way to

influence politics. The only substantial antidote

is people\'s time, and CFR regulation really has to

focus on how to recognize value and encourage

people\'s volunteer contributions of time to our

precious democratic, republican political process.

Thank you so much.

CHAIRMAN THOMAS: Thank you.

Mr. Connolly.

MR. CONNOLLY: My name is John Connolly.

I have an entity, a company in California called

the Print Debate Center. It is an entirely unique

set of Internet architecture that does not in any

way resemble the blogs or partisan groups you

heard from earlier. Let me give you just a little

bit of history, and I will put this in context.

CHAIRMAN THOMAS: I just want to make sure

223

you\'re speaking into the microphone.

MR. CONNOLLY: Is that better?

CHAIRMAN THOMAS: We have directional

mikes, so if you just aim it right at you.

MR. CONNOLLY: Okay; I have published a

series of articles the last couple of years in

various papers, including the Roll Call here in

Washington, D.C., calling for print debates. And

what that is is a structure whereby you could have

over a series of, let\'s say, four weeks, a level

playing field between two or three or more

candidates, and it has debate structuring rules and

terms, et cetera.

After that article was published, I went

to a series of major newspapers, the New York

Times, the Chicago Tribune, LA Times, and some

others, USA Today, and I essentially got them to

agree to a structure, a print debate structure.

And later, for different reasons, we

decided to make this an Internet-based debate

structure. Now, what happens is that, just to tell

you briefly how this works, there is Candidate A,

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Candidate B. On our Website, there is a very

elaborate set of rules, terms, parameters. It\'s a

nonpartisan, equal basis. So Candidate A can go

over there, and he can challenge with a letter on

the Website.

He is challenging his opponent to respond

in-kind. We then wait a period of time for that

candidate to respond. And if the candidate does

not respond, this first candidate can indeed

continue over a period of four weeks, continue

making statements in the particular format, again

challenging his opponent to respond in-kind, et

cetera.

So that is the debate structure. So what

happened was that we started this entity just as an

experiment in 2004. We had a group, a small group

of about 10 people, and we made proposals to

approximately 60 percent of all Federal elections:

the Presidential one, Senate, Congressional, et

cetera, and when we did those proposals, we always

made the proposals the same day, Democrats and

Republicans.

225

Fortunately, since we were using the 5

percent criteria for inclusion, there were no other

parties to really be totally concerned with except

in very isolated situations. So what happened was

we had a total of 11 different candidates challenge

their incumbent challengers, and none were

accepted. So what happened was there was a lot of

publicity in different areas, a lot of heat, but no

real debates, and part of the reason was that the

incumbents had such an enormous advantage that

there was no reason. The incumbents were clearly

not interested in having a debate and being on a

level playing field with their challenger.

It became very clear to me that the

dividing line in the campaign process was not

between Democrats and Republicans as much as it was

between incumbents and challengers. So there was a

ruling some time ago by DNet, there was a proposal

some time ago that carved out sort of a special

place in a way for nonpartisan entities, et cetera.

Well, in a way, we are expecting that the

FEC has a situation where they\'re going to draw

226

lines in various places. And frankly, having

listened to the testimony this morning, it is more

complicated than I had anticipated. I can see

having listened to various different people put

forth their views, it was a very informative

morning.

So when you draw those lines, let me throw

out three possible problems, three possible areas

that should be considered when you\'re discussing a

nonpartisan Website or a nonpartisan process as it

relates to the Website. The first is coordination.

In a way here, when that first candidate gives us a

letter, we are coordinating that letter with them.

We are not taking any money. And by the way, there

is no charge for this. We gave the service away to

virtually every candidate for one dollar. It was a

contractual thing. There was no real money

involved in this. And we accepted no advertising.

There was no revenue model for this.

So the first issue is coordination with

candidates. That\'s number one. There has to be,

in our model, anyway, the idea that you\'re allowing

227

one candidate to challenge someone without any

expectation one way or the other whether they\'re

going to accept, so coordination is number one.

Number two is the idea that there is an

area where Internet may interface with print here.

For instance, let\'s say that you begin to have a

print debate, an online print debate, but we don\'t

want to exclude having newspapers reprint that same

material. So what happens here is a marriage

between the Internet and the print media, so that

context is something that\'s going to be something

for you to struggle with in a way because there are

certain exemptions, et cetera, for advertising, but

in a way, obviously, the newspaper would have to

either give this away for free, or someone would

have to pay for it, either way. But in any case,

they would be replicating something that was

online.

The third is that there has been a

regulation in times past that discouraged or in

some ways outlawed empty chair debates, where let\'s

just say, again, forgetting about the Internet

228

entirely, there\'s candidate A and candidate B.

Candidates A is the challenger. He challenges

candidate B to a debate. Candidate B doesn\'t want

to show up, so candidate A has the big forum and an

empty chair. There is some regulation about that.

So in a way, when we challenge someone or

encourage someone to use the print debate, there is

an empty chair aspect to this. So when you go to

consider rules and regulations, people earlier

today referred to things coming up that we can\'t

envision right now. Well, we have a very elaborate

architecture already done. It\'s going to be coming

up in 2006-2008. So the three things that we need

to really have a nonpartisan debate are a), the

coordination issue with candidates has to be

defined; b), you have to integrate print if

possible; and c), in a way, this is an empty chair

debate. So one has to at least allow for that

possibility.

Stepping back briefly is that in a way,

one of the reasons why the nonpartisan debate

structure should be given a special place is that

229

our democracy, in a way, you know, essentially, 96,

97 percent of the people in Federal elections, the

incumbents won. And so, you know, the question is

are these really competitive? So when you step

back\--are they really competitive? I mean, how

competitive are Federal races today?

The incumbents have such an enormous

advantage, and it\'s interesting: it\'s one thing to

read a statistic. It\'s another thing to talk to

the candidates themselves and to talk to these

challengers and to discuss what their situation is,

et cetera, and to see the enormous differences in

the war chest.

And so, when somebody has, like, \$50,000

in their bank account as a challenger, and they\'re

facing someone with, like, \$1.5 million as an

incumbent, the \$50,000 person can barely keep the

lights on in the office. So they\'re not really

competitive. So there\'s an amazing situation to

see, and I\'m very glad to see that you had\--the

candidates had requirements to go to their\--you

could go to the FEC Website, download documentation

230

that shows what was in everyone\'s bank accounts at

certain intervals during the election cycle. It

was fascinating to actually see what people had.

The disparity was enormous. It wasn\'t a

Democratic-Republican disparity; it was an

incumbent-challenger disparity. So to really take

the high ground with democracy, small D, I think

immediate changes have to be made to really

encourage the debate structure.

Thank you very much for the time to

comment on this.

CHAIRMAN THOMAS: Thank you both.

As I said, our other planned witness is

not here, so we\'re ready to open it up for

questions. Commissioner Weintraub, if you\'d like

to begin.

COMMISSIONER WEINTRAUB: Thank you, Mr.

Chairman.

I just have a comment for Dr. Bearse. We

don\'t really have the authority to remand anything

to Congress. They don\'t have to do anything on our

say-so. It\'s sort of nice to think that we could

231

do that, but that\'s just not an option that we have

available to us. We could make a legislative

recommendation, and we do every year. We have sort

of a checkered history of getting any of those

enacted, but I just thought I would point that out

as a nice suggestion, but I don\'t really think we

avail ourselves of it.

MR. BEARSE: Excuse me; may I just

apologize if I used the wrong word. Remand may be

either too strong or not appropriate, but I was

picking up on what you just said that you can make

suggestions, you can make recommendations, can you

not?

COMMISSIONER WEINTRAUB: We can, but they,

as I said, more often than not, they disregard our

suggestions.

But having said that, I thank the panel

for their comments, and I have no questions.

CHAIRMAN THOMAS: Commissioner Mason.

COMMISSIONER MASON: Mr. Connolly, how do

you suggest we get incumbent officeholders to pass

laws making elections more fair for challenger

232

candidates?

MR. CONNOLLY: You know, I don\'t really

have a good suggestion for that one, I must

confess. You know, the best that can happen is to

look at the process, but it\'s very clear that

you\'re asking the same people that are in control,

in power to essentially put themselves more in

electoral jeopardy by having a truly level playing

field.

Now, supposedly, if you listen to the

logic of McCain-Feingold, it is leveling the

playing field. And of course, much of what you\'re

doing here at different times is to help the

democratic process, public accountability, et

cetera. But no, I don\'t have a magic bullet for

that. I truly do not.

COMMISSIONER MASON: I wanted to address a

couple of things you raised, because I think some

of them may be fairly easy to resolve to the extent

that I think they might present real problems for

you. First, on coordination, I\'m not sure why that

would be a problem, because generally speaking,

233

when we are issuing opinions defining these

exemptions for nonpartisan activities, the effect

is to say these are not expenditures or

contributions, so if they\'re not expenditures or

contributions, there is no relevance to whether or

not they\'re coordinated.

And of course, we\'re aware with Dnet and

these other groups that come in that there is a

certain amount of backing from the sponsoring

organization with the candidates, and usually,

that\'s apparent in the background to the advisory

opinion request.

Now, of course, if it looked like an

organization were sort of in cahoots with one

candidate or one set of candidates, and it wasn\'t

really nonpartisan, then, that would raise

different issues, but I don\'t think, you know,

assuming you\'ve got a genuinely nonpartisan

structure, that the fact that you\'ve been

communicating with campaigns about how they\'re

going to respond and so on ought to be a big

problem.

234

The other issue raised vis-a-vis

newspapers, similarly, the standards that apply to

nonpartisan activity, well, for newspapers, it\'s

easier, because they\'ve got the media exemption

anyway, but anything that an online organization

could do as a nonpartisan activity would also be

permissible for a newspaper to do, so I hope that

answers at least two of your questions.

Then, you might try to tell us to the

extent that I seem to get the sense that you\'re a

little bit uncomfortable with our regulatory

structure, our advisory opinions, and if there\'s

something specific beyond those general areas that

you raise that you think we need to do, I\'d be

happy to hear it.

MR. CONNOLLY: Well, can you speak to the

empty chair issue?

COMMISSIONER MASON: That is a new one on

me. I haven\'t heard of an empty chair regulation.

I suppose as a factual matter, if you only have one

candidate, if you invite both candidates, and only

one shows up, somebody could raise a question about

235

it, but looking at counsel\'s office and the

Chairman, who has been here awhile\--

MR. CONNOLLY: So basically, there\'s three

issues that from your point of view, don\'t present

any impediment as far as a nonpartisan debate

structure.

COMMISSIONER MASON: The DNET opinion, as

I recall, contemplated that some candidates were

going to take advantage of the opportunity to post

answers to questions, and other candidates would

not. And I don\'t recall us thinking that that was

a problem.

MR. CONNOLLY: Yes; well, you know, our

architecture is really very different, but the

process, in a way, in terms of from your point of

view is similar in the sense that you\'re

encouraging both sides of an issue to have a forum.

COMMISSIONER MASON: We\'d be happy to have

you submit an advisory opinion request.

CHAIRMAN THOMAS: Thank you.

I guess on our plan, I\'m next in line. I

guess first, with regard to, since we\'re on the

236

debate concept, on the use of Internet technology,

just so I understand what issues you think are

unresolved, this rulemaking is being put out in the

nature of a proposal that would exempt all Internet

communication from the coordinated communication

rules unless it happens to involve what we\'re

characterizing as a paid advertisement where

someone places an advertisement on someone else\'s

Website.

So the bottom line is that it sounds like,

under the proposal that has been put out for

comment, your debate concept doesn\'t raise any

coordination issues, because the Commission is

basically saying any kind of coordinated activity

with a candidate\'s campaign, no matter how

coordinated, is not going to be subject to the in

kind contribution rules unless it involves paying

for some ad to be placed on someone else\'s Website.

So I don\'t know if that gives you

sufficient comfort. I suppose coming out of this,

the Commission might, particularly along some of

the lines I was putting forward earlier, think

237

about whether there might be some other coordinated

activity that is, in fact, going out over the

Internet that might also be appropriate to be

treated as an in-kind contribution where there is

coordination.

But I haven\'t heard anyone sort of suggest

that what you have in mind, which starts out as an

effort to be politically neutral, would be the kind

of thing that we would want to rein in, to be

honest.

MR. CONNOLLY: That sounds fine to me.

These issues were brought up as the result of an

attorney in a memo in terms of our concerns.

That\'s essentially what the genesis of it was, but

I\'m very pleased that there is no impediment to the

debate structure.

CHAIRMAN THOMAS: And just to be clear, on

your second issue, about the fact that the print

medium might want to pick up on what you have been

doing and sort of, I guess, write about it?

MR. CONNOLLY: No, no, that is not any

problem there. It\'s a normal free speech issue

238

there. It\'s a matter of replicating word for word

part of the debate structure. So a newspaper may

elect to engage in a print debate process to

replicate what was in the debate, to magnify the

impact of the debate.

CHAIRMAN THOMAS: Help me understand:

what do you mean? Something other than writing a

story about it?

MR. CONNOLLY: That is correct. They

would feel free to obviously do their normal First

Amendment duties and editorialize or comment on any

kind of debate or any kind of a comment of a

political nature but to also be able to replicate

either through an ad basis or through actually

replicating in the newspaper what\'s exactly online.

So I\'m presuming\--I\'m pleased to know that

there\'s actually no impediment to that. I have

again\--we\'ve sat down with lawyers and campaign

laws, and these issues come up basically, so I\'m

here at the horse\'s mouth, so to speak, to see

what, in fact, if there\'s anything problematic

about these three issues, which apparently, you\'re

239

assuring me there are not.

CHAIRMAN THOMAS: Well, as I understand

what you\'re talking about, I\'m having a hard time

seeing how anything that we\'ve suggested that we

would do let alone anything that\'s in the actual

proposal would reach what you\'ve got. The Vice-Chairman

leaned over and was asking me in the

context of our longstanding debate regulations,

don\'t we have built in some sort of concept to the

effect that we consider it an exempted activity

under the debate rules if it goes forward with just

one candidate present, and before I say

definitively yes that I think that is one of the

premises underlying our existing debate regs which allows

sponsoring organizations to put on debates on the

theory that it\'s a nonpartisan effort, I would want

to research it more thoroughly, but I do have in

mind that there was, in essence, some concern about

the empty chair concept in our existing debate

regs, and so, you do raise an interesting issue for

us there.

Again, though, I come back to the fact

240

that as our rulemaking right now before us is

proceeding along, we have basically exempted out

everything Internet related except this one area of

paid ads put out on some third party site. So if

it is a coordination issue that you\'re concerned

about, I\'m just not so sure that there really is a

problem.

You would be, sure, coordinating with the

candidate who showed up, but you could say look:

the Commission has this broad exemption for all

Internet related communication except these paid

ads.

MR. CONNOLLY: So here is the wrinkle,

though: let\'s just say that in terms of\--I

understand that if two candidates show up, it\'s a

debate; no problem. If one candidate shows up, and

the other does not, and it\'s not just on the

Internet; it\'s also replicated in the newspaper,

and the newspaper prints out candidate A\'s

comments, questions, according to a certain format,

and on candidate B, it\'s all black that says so and

so declined to participate, do you see the wrinkle

241

here?

So the debate exemption that exists when

you have two candidates, we\'re talking about two

different media here. So it\'s not just the

Internet situation here; it bleeds over into the

print. And so, that\'s my question to you. Am I on

solid ground given those two factors, that a

newspaper reprints the other person\'s empty chair

response with nothing?

CHAIRMAN THOMAS: I mean, it\'s an

interesting little dilemma that we\'ve got. I mean,

historically, I think we were thinking that a lot

of debate sponsors might not be media entities, and

there might be nonpartisan, nonprofit groups that

aren\'t media entities. As it\'s turned out quite

often, the sponsors of a debate end up being media

entities, and so, in that context, we also have the

flexibility to say well, gosh, even if we\'ve only

got one person to show up and they\'re just setting

out what the one person said, they\'re still within

their news story, commentary, editorial role as a

media entity, so they can go ahead and do that.

242

But you do raise an interesting question

about what if some entity other than a news entity

attempted to do something like that.

MR. CONNOLLY: So some clarification in

the future when you are sitting down drawing lines,

that\'s the line I\'m looking for.

CHAIRMAN THOMAS: I will, in the next

round of questions, come back to you, Dr. Bearse.

Let me move on.

Commissioner Smith.

COMMISSIONER SMITH: Thank you, Mr.

Chairman. I suspect one reason media organizations

often sponsor debates is because they can use the

press exemption and avoid some of the issues

involved, and I think it\'s interesting. I know how

much difficulty we have in determining what are the

answers to what seem like some fairly good

questions like that for average citizens.

You know, it\'s one thing for a

Presidential campaign where they can hire lots of

good lawyers and stuff. Some of the things: we\'re

thinking about a group putting on a debate for a

243

couple of House candidates in a much kind of lower

level, and you\'d be more likely to have sort of a

local nonprofit involved, and these questions

become difficult for them.

Nobody has mentioned here today, Mr.

Chairman, so, since we\'re moving along at a pretty

good pace on this panel, I want to mention that we

do have wireless ability here in the room today,

showing how up-to-date the Commission has become,

and I note that there is blogging going on or has

been going on from inside the room.

When I was Chairman a little over a year

ago, Mr. Perhkon had come into my office, and he

said we need to talk about the agency going

wireless, and I thought that was a great idea, that

we get rid of electricity, telephones, faxes; if

people wanted to call us, they would send us

something by the mail. It would be a nice, slow,

relaxed pace. And he said no, no, that\'s not what

I mean. I mean we actually will have more ways for

people to get in touch with us.

But in any case, I digress here.

244

\[Laughter.\]

COMMISSIONER SMITH: Mr. Connolly, I

wanted to ask you a couple of questions. I want to

make sure I understood your written testimony here.

As I understand it, on page 5, at the bottom of

page 4 and page 5 of the testimony, which I guess

was submitted by Mr. Mirro of your organization?

MR. CONNOLLY: That is my attorney. That

is correct.

COMMISSIONER MASON: Basically, what

you\'re saying is that the Commission shouldn\'t

concern itself with the use of corporate or labor

computers being made available to people on the

grounds that in this day and age, people, you know,

companies routinely make them available, and

there\'s no sort of added cost. It\'s analogized

from one point to a specific company that's

providing someone with a pen and paper and that we

really shouldn\'t view it as a cost that creates a

problem. Do I understand that correctly?

MR. CONNOLLY: That is correct; again,

this is done by an attorney that they engaged, so

245

I\'m not sure if I\'m ready to talk to every one of

the points he\'s brought up here, but this was an

issue he talked to. I think yes.

COMMISSIONER SMITH: And so, the approach

would be that, in other words, I guess it would

come down to saying we should go forward really on

the marginal cost, in other words, the actual cost,

if anything, of somebody blogging\--

MR. CONNOLLY: That is correct.

COMMISSIONER SMITH: \--and not worry about

the sunk, fixed cost.

MR. CONNOLLY: Yes.

COMMISSIONER SMITH: Okay; all right. I

just wanted to make sure I understood that.

I want to go back to Dr. Bearse, and then,

Mr. Connolly, I want to ask you, perhaps, to

comment on his thoughts, because I think you have

different perspectives on it but Dr. Bearse, you

said in your opening statement that you hoped to

address a bit more what you saw as the press

exemption, the failure to grant the press exemption

to bloggers would be discriminatory to traditional

246

media, and I wanted to know if you wanted to

elaborate. You had indicated you wanted to

elaborate more. I wonder if you wanted to do that.

MR. BEARSE: Well, the point of

discrimination I would make is really on the point

of advertising. The Commission has proposed that

you have the Internet exemption very much as you

have already but with the qualifier that political

advertising on a Website that\'s paid for would be

regulated.

And I raise the issue of discrimination

between types of organizations and that. After

all, you know that Websites, and you can tell from

the testimony represented by just a few of the

bloggers, Websites are struggling financially. And

advertising may be increasing overall on the

Internet but bloggers and others receive very

little of that, and it seems to me that there\'s

hardly any reason, as long as you were to make sure

that you deal with the problem of the proper

targeting of your regulations to political

committees and corporations and unions, as long as

247

you\'re making sure you deal with those targets

instead of targeting the Internet generally, that

why should you discriminate in your advertising

regulation between large, established, what\'s

called mainstream media and their ability to earn

advertising revenue through the Internet and the

bloggers and others who are struggling? That\'s the

discrimination issue I raise.

Now, Commissioner, I want to make sure I

also treat the rest of your question. Excuse me.

COMMISSIONER SMITH: Go ahead.

MR. BEARSE: Just remind me, please.

COMMISSIONER SMITH: No, I think you\'ve

pretty well answered it if there wasn\'t more that

you particularly wanted to say. But does all this

hinge on the paid advertising? I mean, isn\'t that

an issue generally? I mean, what we seem to be

saying is that if you\'re a big media corporation,

then, you would obviously get the press exemption,

and if you\'re not a big media corporation, if

you\'re just an individual citizen maybe trying to

raise a little ad revenue to support your blog,

248

then, maybe you get it; maybe you don\'t.

MR. BEARSE: That was the other part of

the concern.

COMMISSIONER SMITH: Turning the law on

its head, so that big corporations are exempt, and

average citizens are not.

MR. BEARSE: Yes; it takes us back to the

point I strongly recommended that there be a

blanket exemption, press exemption across the

Internet, because frankly, I don\'t think you can

make any useful discrimination, to come back to

that word, discrimination between media, which some

people call mainstream media and their function and

what you see emerging on the Internet, as others

have spoken to more than I have, as represented by

citizen journalism, as represented by the blogging,

as represented by participation in the blogs,

especially as represented by the DailyKos and his

presentation.

You have a basic challenge here, not only

here but in other areas, of making definitions

which could be harmful or at least more harmful than

249

they\'re worth. It often reminds me of the old

saying that sometimes, it\'s like imagining\--a monk

imagining how many angels can dance on the head of

a pin. I mean, how can you make a useful

distinction between the citizen journalists that

you find increasingly on the Internet and on the

blogs, and I include myself among them, because I

have a Website, and I at least have a semblance of

the blogs who are commenting on the affairs of the

day and who are offering some of their own news,

like I did when I was in Baghdad, and what I called

my Blog from Baghdad.

How do you make these distinctions in a

useful way that enables regulation that can be

positively reinforcing people\'s participation in

politics rather than having the, quote, chilling,

unquote, effects that people are so worried about?

COMMISSIONER SMITH: Mr. Chairman, my time

is up. I had another question for Mr. Connolly, if you

want to give me another minute or two.

CHAIRMAN THOMAS: Go ahead.

COMMISSIONER SMITH: Just along those

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lines, Mr. Connolly, I wanted to ask you, now, you

suggest sort of a contrary approach. You say,

well, you don\'t need to dumb down the press

exemption. Basically, the online community doesn\'t

need the press exemption\--these are in Mr.

Marshall\'s comments\--if the Commission will adopt

the de minimis rule for expenditures on computer

equipment and Internet access charges, the point we

talked about at the start of this.

And I think there is some validity to that

that I think makes sense that would cover a lot of

people. And we have heard some testimony today

that you really can pretty much blog for free, and

that\'s something that you emphasize again here in

the testimony.

But you also go on, or Mr. Marshall goes

on and says as a blogger\'s viewership grows, the

marginal cost of speech may rise. A fee-based

blogging platform may become a necessity to meet

the Web server related costs of a large readership,

but so do opportunities for advertising revenue.

And the category of speech becomes a truly

251

democratic interest or instrument, and it goes on,

and that paragraph, by saying expression becomes

democratizing, not corrupting.

And so, I find myself saying\--I\'m not

quite sure. You seem to be saying on the one hand,

if people aren\'t paying for it, obviously, it

shouldn\'t be regulated, if you\'re blogging

essentially for free. But then, you seem to say if

you start to become more successful, if you start

to become, you know, if not exactly a DailyKos, at

least a RedState or maybe even something that\'s

getting less traffic than that, a BOPNews or even

less than that, but, you know, you may want to then

start upgrading, and you can fund that with your

advertising; it\'s very democratic.

But that seems to run against the notion

that you won\'t need the press exemption, because

you\'re still not spending any money at this point.

You are spending money. Have I been coherent

enough on\--

MR. CONNOLLY: You\'ve been coherent.

COMMISSIONER SMITH: Do you have any

252

thoughts on that?

MR. CONNOLLY: You know, I don\'t

necessarily agree with Mr. Marso. As the Chairman

and I were engaging, I could see that in a way, I

sort of came at this at the beginning with as

little regulation as possible. That\'s my general

philosophical view there. But at the same time,

you know, let\'s just say we look down the road here

three to five years, and all of a sudden, you had a

blog that was coming in and was taking in, you

know, \$127 million.

Well, you know, he may need to be

regulated in some fashion. The advertising may

have been in a way construed as some sort of

campaign contribution in a way if there\'s some kind

of partisanship on the Web. So I could see this,

this is a delicate issue to deal with. So I don\'t

necessarily agree with the fact\--even though Mr.

Marso is an attorney of mine\--I don\'t necessarily

agree with the fact that it may not be without any

need for regulation.

COMMISSIONER SMITH: Okay; well, you raise

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a couple of other points, like I say, about the

cost or value of links and some things like that.

In any event, it\'s, as I mentioned during one of

the earlier panels, it\'s nice to see some different

faces before us and some people from outside the

Beltway. Thank you, gentlemen.

Mr. Chairman.

CHAIRMAN THOMAS: Vice-Chairman Toner.

VICE-CHAIRMAN TONER: Thank you, Mr.

Chairman.

Mr. Bearse, if I could start with you, in

the panels this morning, there was some discussion

about the proposal for paid advertising that

appears on another person\'s Website, that that

would be within the definition of public

communication and a discussion about whether there

should be a type of spending threshold for that to be

met. The current proposal doesn\'t necessarily

envision any spending threshold, so an ad that

might cost \$5 a week or \$20 a week to run on a

Website could be viewed as a public communication.

My question is do you think that if we go

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down the road of regulating paid advertising,

should there be a spending threshold below which

even paid advertising is not subject to regulation?

MR. BEARSE: Well, yes, I do. It\'s very

difficult to say where you would set that, but

you\'d want to be generous in setting a threshold.

I\'ve heard figures ranging between, as you have,

between \$25,000 and \$50,000. I don\'t know what the

basis is for setting a threshold, but, you know,

too often, you know, it\'s what we economists call a

notch effect in setting any kind of monetary

threshold in any kind of legislation, and the

problem is that it\'s not adjusted. It\'s not

indexed.

VICE-CHAIRMAN TONER: Indexed for

inflation?

MR. BEARSE: In a few years, you find that

your threshold becomes sadly outdated. So if

you\'re going to have a threshold, at least index it

and make it a generous one to start with.

VICE-CHAIRMAN TONER: But is it your sense

that you think that we\'re better off having at

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least some threshold?

MR. BEARSE: Some threshold, yes, but my

major point is that you keep your eye focused on

the heartening trends, which I saw for the first

time as we all did in recent memory in the run-up

to November 2, that people were finally coming back

into the political process as active participants,

and ask yourself the question how any regulation

affects that trend.

VICE-CHAIRMAN TONER: Do you think the

Internet had a bearing, played a role in this

increased participation?

MR. BEARSE: The Internet is a wonderful

tool for reaching out to people and mobilizing

them. And we\'ve seen that all the way from the

local level around local issues. I have a number

of examples all the way up to the Federal level for

Presidential campaigns, as others have remarked

this morning, including Mr. Elias.

So its potential is even greater than

we\'ve even yet observed because of that, but the

effect of the Internet on politics is a two-sided

256

coin, and here again, you know, let\'s keep our eye

on the ball as we set regulations as to how we

affect the coin.

One side is this identification of people

that you\'re reaching out to that you can get

together with and mobilizing them around a cause or

a candidate. The other, which I pointed to in an

article I did for Politics Online is this political

polarization issue. And here, I\'d really like to

compliment my colleague here, John Connolly. One

thing he hasn\'t mentioned which is a really nice

feature of his site is that it enables crosstalk

across the political divide, whereas if you look up

and down the political sites on the Internet, you

find that people are talking to each other who are

already identified with a cause or candidate.

VICE-CHAIRMAN TONER: Talking to the

converted already.

MR. BEARSE: Yes, already converted, or

what I call the co-religionists without invoking

religion. So that is the negative side. It\'s part

of what the political scientists call growing

257

political polarization in the country, but I hope

I\'m not getting too far afield.

VICE-CHAIRMAN TONER: Well, Mr. Connolly,

I\'d be interested in your thoughts on, again, this

paid advertising concept. Do you believe there

should be a spending threshold before that is

regulated?

MR. CONNOLLY: You know, I suspect there

is. I suspect you would need\--where to put that, I

would have no idea. I mean, it\'s one of those

things where, you know, on one level, you ask

yourself, well, yes, we had a lot of extra

participation in the last election, and yes, I

think the Internet had something to do with that.

If you have an election, and all of a sudden,

people can give unrestrained money, let\'s say this

guy gives \$200,000; this guy gives \$500,000,

that could be perceived by the average citizen as a

negative issue: why get involved? With my puny

resources, I can\'t compete, in a way.

So when you talk about resources, et

cetera, I think the population in a way responds to

258

these spending limits and things as a good thing.

But I don\'t know where that limit would be.

VICE-CHAIRMAN TONER: Thank you, Mr.

Chairman.

CHAIRMAN THOMAS: Thank you.

We have our general counsel.

MR. NORTON: I have no questions. Thank

you, Mr. Chairman.

CHAIRMAN THOMAS: Alec Palmer, would you

like to ask a question?

MR. PALMER: No, thank you, Mr. Chairman.

CHAIRMAN THOMAS: Sitting in for our staff

director, who is ailing, sadly.

We still have a little bit of time. I did

want to follow up, Dr. Bearse. The point you\'re

making in your written statement at the bottom of

the third page has me worried that maybe we just

need to have a little bit more dialogue so we\'re

understanding each other.

The Commission\'s coordination rules now

have this whole section that we call the

coordinated communication rules, and what we did in

259

crafting those after BCRA was develop what we call

a content prong that has to be satisfied in

addition to the conduct prong. The conduct prong

really goes to whether there was coordination or

not. But the content prong, that first prong, sort

of gets into an effort to try to identify the

content within our communication we would say makes

us comfortable that this probably relates to the

election.

So we have built into that content prong

this idea that, well, first of all, we\'re only

talking about something that we call a public

communication. And then, that\'s where this issue

of does the Internet fit within public

communication or not comes up, and from the outset,

we have said that we\'re not including Internet

communication within that concept of what is a

public communication.

Then, we move on, and we say okay, if

something is a public communication, and it is

express advocacy or, say, what\'s called an

electioneering communication, which is a TV or

260

radio ad that\'s done within a certain timeframe

before the election, or if it is something that\'s

done within 120 days of the election that refers to

a Federal candidate, we will say that\'s the kind of

content that we are then going to then subject to

coordination analysis. I mean, the reverse of that

is if that doesn\'t fit within that definition of

what kind of content we\'re interested in, it\'s not

going to be treated as a coordinated communication,

and it\'s not going to be treated as an in-kind

contribution.

So I gather your comment there at the end

was I guess expressing a concern that maybe we\'re

just kind of focusing on whether or not something

is on the Internet or not regardless of content,

regardless of whether it has express advocacy,

regardless of whether it maybe refers to a

candidate closely to an election. So I wanted to

make sure that you understand the predicate of our

coordinated communication rules and then ask you in

light of that, do you still have concerns that

we\'re sort of, I guess, reaching out too broadly,

261

we\'re regulating too much?

MR. BEARSE: Well, as I say up front in my

written testimony, I think it makes a big

difference whether you take what I call a back end

approach versus a front end approach. I mean, in

your ruling, in your proposed ruling, it seems to

me that you\'re trying to address the decision of

the Shays court primarily through the approach of

adding to the list of those things which are

pointed to as the media for public communication,

which I think would be a terrible mistake if you do

go that way, rather than defining in the world of

the Internet as distinct from the mainstream media

world that you\'re talking about public political

advertising which is regulated if it, in fact, is

initiated by political committees, established

political committees.

Notice that word established, because

there is a whole dynamic on the Internet right now

that you could easily chill, as some would say, by

not or at least by not abiding the dynamic, which

is that there\'s a lot of make or break going on in

262

terms of political committee organization. You

might see what you, under your regulations, you

might see something that you would count as a

political committee that\'s here today, gone

tomorrow. But it\'s still important to the dynamic

of the Internet political process, and you don\'t

want to discourage that.

Now, I\'ve taken great care in my

testimony, perhaps more care written than I was

able to orally in addressing just as you have

focused the PASO, the political advertising that

promotes, advocates, supports, or opposes a Federal

political candidate, and I think you want to be

just this precise that you\'re focusing, that you\'re

regulating PASO political advertising that is

initiated by established political committees and

paid for by large corporations or unions.

I mean, all I\'m saying is that by narrowly

tailoring your ruling, and I think that is

consistent with what others have advised you.

CHAIRMAN THOMAS: That\'s how you would

slice it. That is helpful.

263

I\'m sorry; Commissioner Smith, I sort of

was thinking I was going back\--

COMMISSIONER SMITH: I have nothing more.

I ran over quite a bit before. Thank you.

CHAIRMAN THOMAS: Commissioner Mason. No?

Commissioner Weintraub?

Vice-Chairman Toner?

VICE-CHAIRMAN TONER: Thank you. If I can

just ask Mr. Connolly briefly, at the end of the

day, is it your view that no matter what we do, the

Commission ought to have blanket protection for

individual Internet activities, emails, links,

blogs, Websites and the like, no matter the nature

of that activity and even if coordinated with a

candidate? In your view, at the end of the day, is

that something we need to do?

MR. CONNOLLY: Now, this is across the

board?

VICE-CHAIRMAN TONER: For individuals.

MR. CONNOLLY: Yes, definitely.

VICE-CHAIRMAN TONER: Even if coordinated

with a candidate?

264

MR. CONNOLLY: If it\'s individual, I mean,

in a way, if it\'s coordinated with a candidate, it

depends on the scale of it, actually.

VICE-CHAIRMAN TONER: Why?

MR. CONNOLLY: There would have to be a

threshold there. If you have a candidate

interacting with 1.2 million people, there might

have to be some kind of an aspect of involvement.

But individuals per se, no. When you bring up the

coordination with candidates, I\'m not sure whether

the threshold would be there either. I do not

know.

VICE-CHAIRMAN TONER: Mr. Bearse, your

thoughts?

MR. BEARSE: Myself, I see no compelling

reason within the world of the Internet to apply

your coordination rules. I would make the Internet

communications exempt from your coordination rules.

VICE-CHAIRMAN TONER: So everybody in this

room could fully coordinate with a candidate on

their online activities; not a problem.

MR. BEARSE: Yes, and I think this

265

primarily goes back to the definitional issue that

we raised at another point, and that, you know,

coordination can be a very subtle thing. You know,

somebody like\--consider George Soros, for example,

who gave tens of millions of dollars to ACT and

MoveOn to promote a Democratic candidate, John

Kerry. And then, Zack Exley, who works for MoveOn,

goes to work for John Kerry.

Well, is that coordination? I mean, just

because I happen to believe in a candidate, and I

place an ad strongly supporting that candidate, I

mean, I know you have all kinds of criteria, but it

gets to be a definitional morass that can be quite

chilling of the political process, as I like to see

it unfold.

VICE-CHAIRMAN TONER: Thank you. I want

to thank the witnesses for being here. Thank you.

CHAIRMAN THOMAS: It\'s just an interesting

point and something that we have grappled with, and

in fact, just the other day, in a closed meeting,

we were kind of grappling with this concept. We do

have this idea that as a general concept, if

266

someone develops and pays for some sort of

communication in coordination with the candidate

that the value, the money spent to do that should

be treated as an in-kind contribution subject to,

say, contribution limits, or if it\'s a corporation

or union, subject to the prohibition on

corporations or unions making a contribution in

connection with a Federal election.

But there\'s an interesting line; I mean,

if we\'re taking the position that the kinds of

things being paid for are ultimately

communications, we now have this coordinated

communication rule that, as I noted, does exempt

out everything, and even in the proposal, it will

exempt out everything except for a paid ad on a

third party site.

MR. BEARSE: Or the purchase of a mailing

list.

CHAIRMAN THOMAS: Well, this is an

interesting question. That was my point. What

happens now if, in this modern era, a candidate\'s

campaign folks say gee, we\'ve got to develop this

267

email technology? We want to develop a mailing

list of, say, 6 million people. We\'re going to

have to buy an awful lot of lists, and we want to

be able to send out video clips, streaming video,

pretty neat ads that take some real pros to develop

and that cost money to get it produced, and all of

a sudden, you can start to see how something like

that adds up.

Now, if we\'re going to be sort of saying,

gee, because that kind of communication is going

out in the form of an email, and it\'s on the

Internet, we are just not going to worry about

whether, say, George Soros is willing to pick up

the tab to the tune of \$100,000, \$200,000, whatever

it costs to put together a \$6 million \[sic\] list

and the ability to send out some nice, hard-hitting

ads. If we\'re going to sort of say because it\'s

Internet, we just don\'t care, all of a sudden,

aren\'t you kind of getting right back into the

heart of what the campaign finance laws are? Isn\'t

it a problem on a certain level?

MR. BEARSE: I am, and very, very

268

consciously. I was a little bit surprised in the

discussion earlier and in your notice about the

matter of a threshold for emailings, whether it be

500 or not, using as the criterion the purchase of

a mailing list. Well, if I could, Mr. Chairman,

just take a moment to illustrate what I think is

the growing challenge to the Commission, it\'s what

in the scientific field they call distributed

computing.

And you mention in-kind contributions.

Those are unquestionably important or at least can

be very significant. So here you are, you\'re

proposing a regulation which only focuses on a

money criterion of whether or not a mailing list

has been published. But what about a political

party which has a national network of members, and

the party is providing an in-kind contribution to

its members of some kind of political technology;

it could be a video streaming module, or it could

be software of some form, to enable each one of

those members to become the hub of a network for

sending out hundreds of, even thousands of, emails

269

to other people.

That doesn\'t involve purchase of a mailing

list. But it could be a very substantial form of

outreach to voters. So, you know, the big

challenge emerging for the Commission comes under

the heading of distributed computing, whereby each

individual in the network becomes, as you can see,

on the space analogue, a source of computing, a

source of weight, of dredging through terabytes of

data from international observatories. That\'s the

analogue.

But in the case of the political scene,

each member becomes the hub of a network reaching

out to thousands of others. That\'s the challenge,

and I don\'t know how you would deal with it, but

I\'d like to take the opportunity very quickly to

pick up on Mr. Mason\'s concern, because, and the

concern here for leveling the playing field. I

mean, you speak of valuation, whether it be of in

kind or something else, and one thing I point to in

my written testimony is that the most important

thing in the valuation that you\'re missing is the

270

valuation of people\'s time as volunteers.

And the other thing from the standpoint of

leveling the playing field besides encouraging

political volunteerism is that you do what you can

to reduce the influence of money. We haven\'t seen

any reduction in the importance of money in the

political process; so according to the goals of the

reformers, BCRA has failed.

CHAIRMAN THOMAS: Of course, they say it

depends on how you measure it. They say that they

have gone a great way to take out the big

donations, and it\'s forcing, indeed, just what they

had in mind: many, many smaller donations are

being collected, and although the parties, I guess,

thought they were going to be greatly shortchanged

by the BCRA restrictions, in fact, one can argue

that they did pretty darn well in terms of what

they ultimately raised. But that is a never ending

battle, I guess.

MR. BEARSE: Right. As an economist who

specializes in performance benchmarking, I\'d be

happy to carry on that debate.

271

CHAIRMAN THOMAS: Senator McCain is just

waiting.

Any other questions?

\[No response.\]

CHAIRMAN THOMAS: Very well. Thank you

both for coming. Very interesting testimony. And

we will adjourn until tomorrow. We will take up

with our fourth panel tomorrow morning at 9:30.

\[Whereupon, at 3:34 p.m., the hearing was

recessed, to reconvene at 9:30 a.m., Wednesday,

June 29, 2005.\]