Last month, PayPal notified a number of important e-book distributors and gave them a surprising mandate to remove certain erotica categories from their catalogs or else. The categories included any erotica that covered rape, incest and beastiality. The “or else” was the threat of being banned from using the largest process ordering company on the planet, PayPal. A pretty heavy threat. The e-book publishers listened, took notice and responded. What choice did they have?

So the news of a big reversal in PayPal’s policy today is sweet for the ears of many of the e-book distributors and publishers that were feeling threatened. Mark Coker, CEO of Smashwords and literally dozens of authors who opposed the policy as well as other organizations affected by the policy are pleased with the news. PayPal is calling it a “significant update to it’s acceptable use policy.”

The improved policy basically says PayPal will only prohibit specific books, not entire classes of books. It also says that the policy will only apply to publications containing obscene words and pictures. According to PayPal’s blog post, “We are working with e-book publishers on a process that will provide any affected site operator or author the opportunity to respond to and challenge a notice that an e-book violates the policy.”