Supreme Court questions company campaign spending limits

U.S. Supreme Court Associate Justice Sonia Sotomayor (L) walks out of the Supreme Court building with Chief Justice of the United States John Roberts after her investiture ceremony in Washington September 8, 2009.

WASHINGTON (Reuters) - Corporate spending limits in U.S. political campaigns may be too broad and silence free-speech rights of small businesses like a local hairdresser, Supreme Court conservatives said on Wednesday.

But the court's four liberals, including new Justice Sonia Sotomayor, said more harm than good could be done by overturning precedents upholding the restrictions on corporations and labor unions.

The comments came during arguments in a special session to consider ending long-standing limits on corporate and union spending in political campaigns.

The case involves a 2008 movie critical of then-presidential candidate Hillary Clinton, who is now President Barack Obama's secretary of state.

A lower federal court barred the advocacy group Citizens United from promoting the film, "Hillary: The Movie," ruling it was covered by the laws on campaign advertising, though the group had argued it was a documentary and thus exempt.

The decision by the nation's highest court, expected by early next year, could reshape the rules on how money can be spent in presidential and congressional elections, which already break new spending records with each political cycle.

Some analysts see this as one of the areas where a more conservative court -- with two members appointed by former Republican President George W. Bush -- may make a dramatic change in campaign finance law.

During the arguments the court's conservative majority seemed likely, by a 5-4 vote, to strike down the limits -- a move that supporters of the law have said could unleash a flood of corporate money into the U.S. political system to promote or defeat candidates.

In the 2008 election cycle, nearly $6 billion was spent on all federal campaigns, including more than $1 billion from corporate political action committees, trade associations, executives and lobbyists.

COVERS THE LOCAL HAIRDRESSER

Conservative Justice Antonin Scalia said the law may be too broad, covering not just big corporations, but also individually owned small businesses like hairdressers, auto repair shops or car dealerships.

Justice Anthony Kennedy also seemed troubled that the restrictions violated the free-speech rights of companies. "You are silencing them during an election," he said.

The 2002 campaign finance law at issue in the case was named after Senator John McCain, the unsuccessful Republican presidential nominee in 2008, and Democratic Senator Russell Feingold. Both McCain and Feingold attended the arguments.

The court's conservative majority, with the addition of Chief Justice John Roberts and Justice Samuel Alito, both Bush appointees, already has voted to limit or strike down parts of the law designed to regulate the role of money in politics and prevent corruption.

During the arguments, Roberts said a tobacco company might want to run an ad opposing a candidate who wanted to make tobacco illegal. The law restricts broadcast ads by companies and unions right before elections.

The case marked the first arguments for Sotomayor who was appointed by Obama and approved by the Senate a month ago.

She said the court by overturning precedent could be "cutting off the future democratic process", preventing state legislatures and Congress from adopting campaign finance laws.

Sotomayor said the court may be "doing more harm than good" by a broad ruling in a case that does not even involve a corporation or a typical non-profit group.

The case involved a conservative advocacy group called Citizens United. It challenged the federal campaign finance law as part of its effort to broadcast and promote the 90-minute film critical of Clinton during her presidential campaign.

Sotomayor and the other liberals, Justices John Paul Stevens, Ruth Bader Ginsburg and Stephen Breyer, all seemed to support the limits or to find a way to rule narrowly.

Solicitor General Elena Kagan made her first argument before the court in defending the limits. She said corporations for more than 100 years have been subject to special limits.

Theodore Olson, a prominent conservative lawyer, argued the limits inhibit robust debate about candidates for elective office and should be struck down.

(Editing by Deborah Charles and Cynthia Osterman)