Sony dropped its jailbreaking lawsuit against PlayStation 3 hacker George Hotz on Monday in exchange for promises the New Jersey hacker would never again tinker with the game console or any Sony product, records show.

Respected for his iPhone hacks and now the PlayStation 3 jailbreak, Hotz was accused of violating the Digital Millennium Copyright Act and other laws, after he published an encryption key and software tools on his website in January that allow Playstation owners to gain complete control of their consoles from the firmware on up.

The DMCA prohibits the trafficking of so-called “circumvention devices” designed to crack copy-protection schemes. The law does not require Sony to prove that Hotz received payment for the hack, which was designed to allow PlayStation 3 owners the ability to run home-brewed software or alternative operating systems like Linux. It builds on a series of earlier jailbreaks that unlocked less-protected levels of the PlayStation’s authentication process.

Jailbreaking a console is also a prerequisite to running pirated copies of games. Performing a similar hack on a mobile phone, however, is not unlawful.

According to terms of the San Francisco federal court settlement (.pdf), the 21-year-old hacker, who goes by the handle GeoHot, agreed not to perform "reverse engineering, decompiling, or disassembling any portion" of a Sony product. He also agreed not to "bypass, disable, or circumvent any encryption, security, or authentication mechanism." Breaching terms of the settlement is a $10,000 fine per violation, according to court documents.

U.S. District Judge Susan Illston must approve the injunction, which is dated Saturday but lodged in court Monday.

"I am not able to speak on this matter without breaching my settlement agreement. Therefore, I have no comment other than this one. With that said, I do not like censorship, and I do not like censoring myself. Rest assured I am still fighting the good fight, in the best way I know how," Hotz said in an e-mail to Wired.com.

Riley Russell, Sony's general counsel, said in a statement that the console maker brought the litigation "to protect our intellectual property and our consumers. We believe this settlement and the permanent injunction achieve this goal."

The deal represents an end to Sony's scorched-earth litigation tactics.

In three months, Sony had convinced Judge Illston to order Hotz to remove the hack from his website and to fork over his hard drives to Sony for inspection. What's more, Sony also won subpoenas to Hotz's PayPal, Twitter, YouTube (.pdf) and other accounts.

The only benefit to Sony to pursue the case to trial would be to win unspecified monetary damages. However, Sony risked a lot more if it went to trial and lost.

And even if it won, the unneeded Sony publicity could shed light on the inequities of the DMCA and spark calls for change.

The U.S. Copyright Office last year granted an exception to the DCMA when it comes to jailbreaking mobile phones so they can run any apps a user wants. But videogame consoles are still covered by the DMCA. Modding them can be either a civil or criminal offense.

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