Mark Coker, the founder of e-book publisher Smashwords, got an alarming e-mail from PayPal's enforcement division last month. It was an ultimatum telling the company to pull certain books with "obscene" content from its inventory, Coker said in a blog post.
"Their hot buttons are bestiality, rape-for-titillation, incest, and underage erotica," he wrote. "PayPal gave us only a few days to achieve compliance otherwise they threatened to deactivate our PayPal services."
Smashwords isn't the only e-book publisher targeted by PayPal, according to the non-profit Electronic Frontier Foundation (EFF), similar emails were also sent to Book Strand and eXcessica.
"When PayPal chooses to censor content, they're censoring our intellectual curiosity," EFF's Activism Director Rainey Reitman told CNET. "Financial service providers should be neutral when it comes to lawful online speech."
PayPal says that the "acceptable use policy" that sellers agree to when they sign up for a PayPal account states that some content is not allowed. "In general, PayPal does allow our service to be used for the sale of erotic books, but we have to draw the line on certain adult content that is extreme or potentially illegal," PayPal spokesman Anuj Nayar told CNET in an e-mail.
"Our decisions relating to adult content are based solely on business factors," he continued. "We consider what's standard across the industry, our agreements with the card associations and banks that enable us to provide service to our customers, and of course, the laws governing the sale of adult-oriented content."
According to Reuters, which first reported this story, PayPal said that its banking partners and credit card associations have a strict stance on "obscene" content, and in order to maintain good relationships with those partners, the online payment company must comply with those rules.
Since PayPal sent the original e-mail to Smashwords in February, the two companies have been in talks trying to work out a deal. Coker has told its authors that the e-book publisher will no longer sell books with major themes on bestiality, rape, incest, and underage erotica, and at the same time he is working with PayPal to get a more relaxed definition of "prohibited content."
"There's a sliver of hope that I might be able to obtain a more positive, less restrictive outcome," Coker wrote in a more recent blog post, "yet it's unlikely we'll achieve the true result I want (no censorship) in the near term."
PayPal confirmed that it is in talks with Smashwords. "While we cannot comment on the specifics of Smashword's account, we can confirm that we are working directly with Mr. Coker to resolve this issue," Nayar said. "Payments to the Smashwords account have not been suspended and he is able to use his account as normal."
Still, for EFF, the battle has just begun. In collaboration with 18 other groups, including the American Civil Liberties Union of Northern California, Authors Guild, National Coalition Against Censorship, and the PEN American Center, the nonprofit is sending a protest letter to PayPal today imploring the online payment company to not limit free speech.
"The topics PayPal would ban have been depicted in world literature since Sophocles' 'Oedipus' and Ovid's 'Metamorphoses,'" the groups wrote, according to a draft letter sent to CNET. "PayPal, and the myriad other payment processors that support essential links in the free speech chain between authors and audiences, should not operate as morality police."