In a victory for free speech, PayPal today announced plans to revise their content policies to allow Smashwords writers full freedom to publish and sell legal ebooks.

This is a victory for all writers and readers. It removes credit card companies, banks and payment processors from the business of censoring legal fiction. It creates a new precedent that should allow other payment processors who have previously discriminated against legal fiction to relax their policies.

It will make more fiction more available to more readers. It gives writers greater freedom to express themselves. It gives readers more freedom to decide what they want to experience in the privacy of their own imagination.

First and foremost, we are going to focus this policy only on e-books that contain potentially illegal images, not e-books that are limited to just text. The policy will prohibit use of PayPal for the sale of e-books that contain child pornography, or e-books with text and obscene images of rape, bestiality or incest (as defined by the U.S. legal standard for obscenity: material that appeals to the prurient interest, depicts sexual conduct in a patently offensive way, and lacks serious literary, artistic, political or scientific value).

Recently, PayPal gave online publishers and booksellers, including BookStrand.com, Smashwords, and eXcessica, an ultimatum: it would close their accounts and refuse to process all payments unless they removed erotic books containing descriptions of rape, incest, and bestiality. The result would severely restrict the public's access to a wide range of legal material, could drive some companies out of business, and deprive some authors of their livelihood.

Financial services providers should be neutral when it comes to lawful online speech. PayPal’s policy underscores how vulnerable such speech can be and how important it is to stand up and protect it.

The topics PayPal would ban have been depicted in world literature since Sophocles’ Oedipus and Ovid’s Metamorphoses. And while the books currently affected may not appear to be in the same league, many works ultimately recognized for their literary, historical, and artistic worth were reviled when first published. Books like Ulysses and Lady Chatterley’s Lover were banned as “obscene” in the United States because of their sexual content. The works of Marquis de Sade, which include descriptions of incest, torture, and rape, were considered scandalous when written, although his importance in the history of literature and political and social philosophy is now widely acknowledged.

On Saturday, February 18, PayPal’s enforcement division contacted Smashwords with an ultimatum. As with the other ebook retailers affected by this enforcement, PayPal gave us only a few days to achieve compliance otherwise they threatened to deactivate our PayPal services. I've had multiple conversations with PayPal over the last several days to better understand their requirements. Their team has been helpful, forthcoming and supportive of the Smashwords mission. I appreciate their willingness to engage in dialogue. Although they have tried their best to delineate their policies, gray areas remain.

Their hot buttons are bestiality, rape-for-titillation, incest and underage erotica.

We do not want to see PayPal clamp down further against erotica. We think our authors should be allowed to publish erotica. Erotica, despite the attacks it faces from moralists, is a category worthy of protection. Erotica allows readers to safely explore aspects of sexuality that they might never want to explore in the real world.

The moralists forget that we humans are all sexual creatures, and the biggest sex organ is the brain. If it were not the case, none of us would be here. Erotica authors are facing discrimination, plain and simple. Topics that are perfectly acceptable in mainstream fiction are verboten in erotica. That’s not fair.

A lot of people have been attacking Smashwords for my decision to comply with PayPal's requirements. They're pointing their arrows at the wrong target, and they're not helping their cause. We're working to effect positive long term change for the entire Smashwords community, and that includes all our erotica authors and readers.

Over the weekend, many Smashwords authors and publishers demanded we abandon PayPal and find a new payment processor. It's not so simple, and it doesn't solve the greater problem hanging over everyone's head. PayPal is trying to implement the requirements of credit card companies, banks and credit unions. This is where it's all originating. These same requirements will eventually rain down upon every other payment processor. PayPal is trying to maintain their relationships with the credit card companies and banks, just as we want to maintain our relationship with PayPal. People who argue PayPal is the evil villain and we should drop them are missing the bigger picture. Should we give up on accepting credit cards forever? The answer is no. This goes beyond PayPal. Imagine the implications if credit card companies start going after the major ebook retailers who sell erotica?