Updated: 7:09 p.m.

The Federal Election Commission is abandoning an ongoing court battle involving EMILY’s List that may increase financial involvement by outside groups in future elections.

The agency Thursday deadlocked 3-3 in a vote to decide whether it would ask an appellate court to rehear a September decision involving the reproductive rights group.

In its original argument, EMILY’s List attempted to carve out a campaign finance exemption for itself and other nonprofit organizations by challenging regulations that limit how they raise and spend money.

The court eventually ruled that contributions and other restrictions dating back to 2005 are an infringement on free speech rights. The case is leaving many political watchers scratching their heads. First and foremost, despite its origination with a partisan liberal group, many conservatives — including the agency’s three Republican commissioners — say the case represents a fundamental free speech issue.

Meanwhile, Democrats and the campaign finance reform community are calling it a case of judicial activism, arguing that the court went off the rails earlier this fall when anti-regulatory judges decided to use it as an opportunity to loosen restrictions on nonprofit groups.

In its decision, the court wrote that EMILY’s List, “like individual citizens,— is “entitled to spend and raise unlimited money.—

Following Thursday’s FEC vote, Democratic-nominated commissioners Cynthia Bauerly and Ellen Weintraub said that their Republican colleagues are to blame for not reaching a consensus on how to proceed in the EMILY’s List case.

“The commission’s inability to reach an agreement to seek rehearing is troubling because the divided panel’s majority opinion reaches constitutional conclusions that were not necessary to its holding and were not briefed by either party at any stage in the litigation,— the two Democratic commissioners wrote in a joint statement following the vote. “Although we do not believe it appropriate to appeal every adverse decision from a court, in cases where a divided opinion reaches significant constitutional questions not briefed by either party, we believe it is imperative to seek guidance from the full Circuit on behalf of the Commission and all who must comply— with the Federal Election Campaign Act.

In a nine-page statement, the agency’s three Republican commissioners gave an exhaustive explanation on why they are siding unanimously with the liberal organization, which raises money for Democratic women running for office who support abortion rights.

“We agree with the EMILY’s List decision,— the GOP commissioners wrote. “The court followed Supreme Court precedent in applying constitutionally sound reasoning.—

The joint statement was issued by GOP-nominated commissioners Don McGahn, Caroline Hunter and Vice Chairman Matthew Petersen.

The decision to ask the Supreme Court to review the EMILY’s List case now resides with recently installed Solicitor General Elena Kagan, whose office has not decided how it will proceed.

“The Solicitor General’s office is studying the Court of Appeals decision,— Justice Department spokeswoman Beverly Lumpkin said.

Like agency Democrats, the reform community on Thursday used the deadlocked vote as an opportunity to again criticize Republican commissioners for crippling the nation’s election regulator by forcing ties on critical votes.

“The three Republican Commissioners of the Federal Election Commission (FEC) once again have failed to discharge their duty to faithfully administer the campaign finance laws,— Democracy 21 President Fred Wertheimer said in a statement. “Normally government agencies take actions to defend the constitutionality of the regulations they have issued, but today’s vote by the Republican FEC Commissioners to block an FEC appeal continues their pattern of doing everything they can to emasculate the nation’s campaign finance enforcement agency and thereby to emasculate the nation’s campaign finance laws.—

What the agency’s decision to drop the EMILY’s List case means exactly for the 2010 election cycle remains to be seen — but it could be drastic. In an e-mail, Patton Boggs campaign finance lawyer William McGinley, a Republican, predicted that “the FEC’s decision not to seek a rehearing of EMILY’s List is yet another indication that independent speech could be a major factor in next year’s elections.—