The Supreme Court on Thursday struck down the "millionaire's amendment" as an unfair way to help opponents of wealthy candidates who spend from their personal fortunes.
The law allows candidates to receive larger contributions when their wealthy opponents spend heavily from their personal fortunes.
The court says by a 5-4 vote that the law violates the First Amendment.
The law was challenged by Jack Davis, a New York Democrat who has so far spent nearly $4 million of his own money in two losing campaigns for Congress and says he will spend another $3 million this year.
Davis says the law unfairly rewards his opponents by letting them exceed campaign fundraising limits simply because Davis dipped into his personal funds.
Writing for the majority, Justice Samuel Alito said that if the millionaire's amendment raised the contribution limits for all candidates, Davis's challenge to the law "would plainly fail."
The amendment is part of the 2002 campaign finance law, but has come into play in relatively few races. Its most prominent beneficiary so far has been Sen. Barack Obama. He was able to attract additional contributions for his Democratic senatorial primary campaign in Illinois because an opponent spent nearly $29 million of his own money.
Davis lost in 2004 and 2006 to Republican Rep. Tom Reynolds, who spent more than $5 million in winning re-election two years ago, 51 percent to 49 percent.
Reynolds chose not to solicit increased contributions after Davis triggered the millionaire's amendment by putting at least $350,000 of his own money into the race. Reynolds could have received $6,900 from individual donors, triple the limit otherwise. Reynolds is retiring at the end of this term.