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SAN FRANCISCO -- PayPal, the online payment service owned by San Jose-based eBay (EBAY), is backtracking on its policy against processing sales of e-books containing themes of rape, bestiality or incest after protests from authors and anti-censorship activist groups.

PayPal's new policy will focus only on e-books that contain potentially illegal images, not e-books that are limited to just text, spokesman Anuj Nayar said on Tuesday. The service will still refuse, however, to process payments for text-only e-books containing child pornography themes.

The revised policy will also focus on individual books, rather than entire classes of books, he added. E-book sellers will be notified if specific books violate PayPal's policy, and the company is working on a process through which authors and distributors can challenge such notifications, the spokesman said.

"This is going to be a major victory for writers, readers and free speech," said Mark Coker, founder of e-book distributor Smashwords. "They are going to build a protective moat around legal fiction."

PayPal warned Smashwords and some other e-book publishers and distributors earlier this year that it would "limit" their PayPal accounts unless they removed e-books "containing themes of rape, incest, bestiality and underage subjects."

PayPal's

PayPal is relaxing the policy after the main credit card companies made a distinction between extreme pornographic images and e-books that explore such topics with only the written word.

PayPal told e-book distributors earlier this year that the original policy was in place partly because the banks and credit card companies it works with restrict such content.

However, Doug Michelman, global head of corporate relations for Visa, suggested that the company would not crack down on e-books that explore such topics, according to a letter he wrote that was posted on the blog Banned Writers. A Visa spokesperson confirmed that the letter was real.

"The sale of a limited category of extreme imagery depicting rape, bestiality and child pornography is or is very likely to be unlawful in many places and would be prohibited on the Visa system whether or not the images have formally been held to be illegal in any particular country," Michelman wrote. "Visa would take no action regarding lawful material that seeks to explore erotica in a fictional or educational manner."

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Protests force PayPal to drop attempts at e-book censorship

PayPal has found itself at the center of a heated debate over online censorship after demanding that e-book publishers remove from their marketplaces titles with objectionable themes of rape, bestiality, incest and underage sexual activity.

PayPal, the primary payment services provider for independent online publishers such as Smashwords, has attempted to clarify its position, explaining that the decision to lean on e-book merchants is consistent with a longstanding usage policy and was motivated by the risks associated with trafficking in erotica that runs afoul of the terms of service of its financial services partners, seeking to tamp down allegations of censorship.

"PayPal is a payments company. The right to use PayPal's service is not the same as the right to speak," Anuj Nayar, PayPal's director of communications, wrote in a post on PayPal's corporate blog.

"Unlike many other online payment providers, PayPal does allow its service to be used for the sale of erotic books," Nayar said. "We believe that the Internet empowers authors in a way that is positive and points to an even brighter future for writers, artists and creators the world over, but we draw the line at certain adult content that is extreme or potentially illegal."

PayPal began approaching e-book publishers in February with what Smashwords has described as an ultimatum, insisting that the companies remove erotica titles containing objectionable content or see their accounts deactivated. Other affected companies include BookStrand.com, All Romance eBooks and eXcessica.

In the time since, PayPal has been in talks with the e-book publishers, and Nayar noted that the company has not severed its ties with any of them as it attempts to reach a solution. Smashwords, which has been among the most vocal about the imbroglio, has said that PayPal's enforcement team has been helpful and that talks have been productive, though it acknowledges that there is no clear and simple path forward.

Smashwords founder Mark Coker has also pointed out that PayPal is within its legal rights to bar payment services to marketplaces trading in content that violates its policies, and that, moreover, the crackdown on objectionable erotica comes at the behest of credit card companies, credit unions and other financial partners. Nevertheless, he is urging PayPal to relax its position, arguing that the company is unfairly targeting writers of erotica while the policy, carried to its logical extent, would also ban the sale of controversial mainstream literature such as Vladimir Nabokov's Lolita.

"There's no easy solution. Legally, PayPal and the credit card companies probably have the right to decide how their services are used. Unfortunately, since they're the moneyrunners, they control the oxygen that feeds digital commerce," Coker wrote in an email to Smashwords authors and publishers.

"Regardless (of) one's opinions about these objectionable topics, we view this attempted censorship as a bad precedent. Fiction is fantasy. It's not real," he said.

But PayPal disputes that point. Not only do e-books about subjects like rape and bestiality often contain objectionable images, they can fall into a dubious genre that is not entirely fictive, according to Nayar.

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PayPal Erotica Ban Touches Off Internet Censorship Debate

The companies, now on trial in India, potentially could be fined and see executives jailed over not censoring certain content.

In India, Web censorship is a huge concern. Google and Facebook are learning that the hard way.

The companies, as of today, are on trial in India over claims that they didn't censor content posted on their respective Web sites. According to The Wall Street Journal, which first reported on the case, Indian journalist Vinay Rai brought a criminal complaint against the Web giants, along with 10 other firms, alleging that their lack of censorship "will corrupt minds."

Censorship demands have long presented legal issues for Google and Facebook. Many countries have requested that the companies censor content to comply with local law. China has arguably been the most forceful in its call for censorship, going as far as blocking certain sites within its borders. A couple years ago, China forced Google to censor Web results. Soon after doing so, Google changed its mind and moved its Chinese search operations to Hong Kong.

So far, India hasn't gone as far as blocking Web sites, but the country has made it clear that it wants all "objectionable" content to kept away from its citizens. According to the Journal, Google and Facebook have said in India that they would block certain content, but only if they're notified of an infringement. The companies' core defense centers on India's information technology law, which they claim protects them against content added to sites by users.

A battle between the online giants and India seemed to be brewing in December when the government demanded that all Web companies prescreen user content before it hits the Internet. India's acting telecommunications minister, Kapil Sibal, said at the time that the move would limit the disparaging or inflammatory content that has found its way onto the Internet.

In a previous meeting with lawyers from several online firms and Internet service providers last year, Sibal showed them a Facebook page that included critical remarks about India's Congress Party president, Sonia Gandhi, according to a New York Times report. Sibal said he would want that kind of content erased before it had a chance to make it online.

The stakes are high for both Facebook and Google. According to lawyers with whom the Journal spoke, Facebook and Google could face fines, if found guilty of violating India's online censorship laws, and its executives could face jail time.

Neither Facebook nor Google immediately responded to CNET's request for comment.

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Facebook, Google in India's crosshairs over Web censorship

Blacked out ... a temporary shield was erected last year at a Christmas Island detention centre to prevent media from photographing detainees. Photo: James Brickwood

THE Immigration Department developed its new, highly restrictive policy on media visits to detention centres with reference to US military arrangements governing media access to the Guantanamo Bay terrorist detention centre.

Documents released under freedom of information show the ''deed of agreement'' that Immigration insists journalists and media organisations visiting detention centres must sign was ''informed by the current US Department of Defence media access policy for its detention facility at Guantanamo Bay''.

The department also justified extremely tight media control and censorship to the Immigration Minister, Chris Bowen, as ''the right balance'' in circumstances that included ''the current climate associated with media ethics, media 'phone hacking' [in Britain]''.

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Access denied ... media have argued it was easier to visit Guantanamo Bay (pictured) than to gain access to an Australian immigration facility. Photo: Reuters

In an email to a reporter who was consulted on the policy, Immigration's national communications manager, Sandi Logan, said, ''I reckon while the phone hacking scandal is all the rage, what else would the media expect of us? Trust you say? Gimme a break, sorry!''

The Greens' immigration spokeswoman, Sarah Hanson-Young, said yesterday ''the idea that [media access] guidelines have, even in part, been inspired by Guantanamo Bay is absolutely appalling - it really shows the attitude of Immigration and [the] government - they have forgotten that they are dealing with asylum seekers, not criminals or terrorists.''

The policy requires that journalists visiting detention centres must be escorted at all times by Immigration officers. There is a bar on any ''substantive communication'' with detainees, a right for officials to censor recordings, and the right for Immigration to immediately end any visit.

The chief executives of the largest media organisations, including Fairfax Media's Greg Hywood, News Ltd's Kim Williams and the heads of all TV broadcast networks last month condemned the agreement as ''unacceptable censorship''.

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Detention centre policy based on Guantanamo

By now you've heard that Yahoo has sued Facebook, alleging patent infringement. But just which pieces of intellectual property is Yahoo claiming Facebook ripped off?

Surely, you'd say, Yahoo doesn't claim that it invented the entire social networking model Facebook is based uponexcept it turns out that is almost exactly what Yahoo is claiming.

"Facebook's entire social network model, which allows users to create profiles for and connect with, among other things, persons and businesses, is based on Yahoo!'s patented social networking technology," Yahoo claims in the lawsuit, filed yesterday in US District Court in Northern California. "Prior to adopting Yahoo!'s patented social networking technology in 2008, Facebook was considered one of the worst performing Internet sites for advertising. Facebook's use of that social networking model has reportedly dramatically driven up Facebook's advertising click through rates."

Nearly all the technology that makes Facebook successful is based on Yahoo patents, the company further states.

"For much of the technology upon which Facebook is based, Yahoo! got there first and was therefore granted patents by the United States Patent Office to protect those innovations. Yahoo!'s patents relate to cutting edge innovations in online products, including in messaging, news feed generation, social commenting, advertising display, preventing click fraud, and privacy controls," Yahoo alleged in its court filing. "These innovations dramatically improve user experience, privacy, and security and enhance the ability of advertisers to connect with users."

What does Yahoo want? Money. Lots of money.

"Even if Facebook were to subsequently pay past due royalties, it would still enjoy a market share it has developed during its period of 'free riding' on Yahoo!'s intellectual property. Yahoo! would likewise lose its portion of the market share for this period. Due to the difficulty in predicting whether, if at all, such market share can be recovered, Yahoo!'s harm cannot be compensated by payment of past due royalties alone."

Yahoo doesn't specify a dollar amount. But whatever amount of damages the court sees fit to grant, Yahoo says those damages should be tripled "in view of the willful and deliberate nature of the infringement."

Yahoo is asserting ten patents against Facebook, divided into five categories: social networking, advertising, privacy, customization, and messaging. Facebook, by the way, apparently owns just 21 US patents, while Yahoo has more than 1,000.

Yahoo notified Facebook of the allegedly infringed patents on Feb. 27, and then filed suit after Facebook apparently refused to pay the licensing fees Yahoo demanded. Let's take a look at each of the ten patents being asserted against Facebook, organized by the category divisions used in Yahoo's lawsuit.

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Yahoo IP lawsuit: We patented "Facebook's entire social network model"