Bowing to protests from free-speech advocates, PayPal announced it will continue processing payments for books that contain descriptions of rape, incest and bestiality.
PayPal drew criticism controversy two weeks ago when it announced that it would stop processing payments to publishers of certain kinds of erotic literature.
Certain online publishers and retailers, including Book Strand, Smashwords and eXessica, learned that their PayPal accounts would be closed unless they stopped selling books containing descriptions of rape, incest and bestiality.
A coalition of free-speech groups - including the Electronic Frontier Foundation, the National Coalition Against Censorship and American Civil Liberties Union of California - called on PayPal to reverse its plans.
"The topics PayPal would ban have been depicted in world literature since Sophocles' 'Oedipus' and Ovid's 'Metamorphoses,'" the coalition said in an open letter last week.
"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."
The groups objected to "PayPal functioning as an enforcer of public morality," and said the policy would severely limit the public's access to legal material.
PayPal initially said its policy had nothing to do with free speech. "The right to use PayPal's service is not the same as the right to speak," PayPal spokesman Anuj Nayar said in a March 8 post to the company's blog.
On Tuesday, however, PayPal "clarified" changes it would make in its policy.
The policy will now focus only on e-books that contain potentially illegal images, not just text-based books, and will prohibit e-books with content that violates U.S. obscenity laws, Nayar said.
The policy will also focus on individual books, rather than "classes" of them.
"Our primary interest in this matter has always been to come to a mutually agreeable solution that allows freedom of expression, while still ensuring PayPal is used in ways that fully comply with applicable laws and our policies," Nayarwrote.
The Electronic Frontier Foundation praised PayPal's decision.
"Free speech in the 21st Century depends on a chain of electronic service providers, and financial services like PayPal play a critical role in the unfettered exchange of information and ideas in the digital world," EFF activism director Rainey Reitman said in a statement. "We are so glad that PayPal has clarified its policy, and won't interfere with lawful access to legal content."