McKenna's office said Friday that it will not continue its defense of Engrossed Senate Bill 6252, one of several measures written by lawmakers earlier this year to combat online sex trafficking. Gov. Chris Gregoire signed the bill, aimed at online classified site Backpage.com, into law in March.
The law was challenged by Backpage.com and the Electronic Frontier Foundation, an internet advocacy group.
In July, U.S. District Judge Ricardo Martinez issued a temporary injunction blocking the law from taking effect. The settlement this week paves the way for the block to become permanent.
The Electronic Frontier Foundation sued on behalf of online library Internet Archive, arguing that targeting Internet service providers was unconstitutional and violated federal law. Backpage.com sued separately.
The organization said the Washington Legislature passed the law "despite its obvious potential to curtail legitimate speech."
For example, the vague and overbroad statute threatened to impose felony liability not only on those directly engaged in illegal acts but also on those who "indirectly" caused to be "disseminated" any "implicit" offers for commercial sex acts. That could potentially affect services that merely provide access to information, like web hosts, ISPs, or online libraries, impeding their ability to operate," the organization said in a statement.
Attorneys for Backpage.com and the EFF argued the state law came into conflict with the federal Communications Decency Act, which protects online service providers from the acts of its subscribers or users.
McKenna said unless Congress makes changes to that federal rule, an appeal to uphold the state law would have been lengthy and costly.
"We disagree with Judge Martinez," McKenna said in a statement. "We do not believe that advertisements for a service illegal in every state - prostitution - are protected by the Constitution. That part of his decision would likely be overturned upon appeal."
Contrary to McKenna's statement, prostitution is legal in Nevada in licensed brothels.
As part of the settlement, Washington state will pay $200,000 to cover legal fees of Backpage.com and the Electronic Frontier Foundation.
Phoenix-based Village Voice Media Holdings LLC owns Backpage.com. It also owned free arts weekly newspapers across the country, including New York's Village Voice and the Seattle Weekly, but the newspapers were sold to a separate company earlier this year.