Yahoo announced today that it has settled a lawsuit brought in a California federal court on behalf of two Chinese Yahoo users, Shi Tao and Wang Xiaoning. The lawsuit alleged that Yahoo turned over electronic records on Shi and Wang to the Beijing State Security Bureau. That information, the plaintiffs argued, directly led to their arrest, conviction, and subsequent torture while each served a 10-year sentence. Yahoo, the lawsuit alleged, was responsible for their treatment.

Yahoo never denied that it did, in fact, hand over user information on Shi and Wang to Chinese authorities. But the company argued that it was forced to in order to comply with Chinese law. And, Yahoo lawyers said, it was unclear what role, if any, the information that the company provided played in the arrest and conviction of Shi and Wang.

News of the settlement comes a week after Yahoo CEO Jerry Yang and general counsel Michael Callahan faced harsh questions about the company’s business practices in China during a House Foreign Affairs Committee hearing on Capitol Hill. During that hearing, committee chairman Tom Lantos asked Yang to turn around and personally apologize to Shi’s mother, who was seated directly behind the Yahoo executives in the hearing room. Lantos chided Yang and Callahan for doing nothing to help the families of those imprisoned. When Yang said he would personally like to do more, Lantos quipped, “Well, you certainly couldn’t do less.”

New Jersey Republican and senior House Foreign Affairs Committee member Chris Smith went further. He challenged Yahoo to settle the lawsuit as quickly as possible. After the hearings concluded, Yang reportedly approached the family members of the detainees, asked to speak with them privately, and started the process that culminated today with the announcement that a deal had been reached.

The terms of the settlement were not disclosed and are to remain confidential. But the plaintiffs and their families are pleased, according to Morton Sklar. He’s the executive director of the World Organization for Human Rights USA, the Washington-based group that brought the suit on behalf of Shi and Wang. “Everyone’s first priority is getting the prisoners released. What everybody realized was that if this case continued, that would take four or five more years.”

Sklar says that he and his clients feel assured that Yahoo will do everything it can to ensure that Shi and Wang get out sooner than that. “What the settlement and Congressional hearings emphasize,” Sklar says, “is that U.S. corporations have to recognize that they must do more, that their responsibility extends beyond the obvious of abiding local laws in the countries they operate in, but also abiding by U.S. laws and international human-rights standards.”

Human-rights groups were cautiously optimistic about the settlement. Most welcomed the idea that the families of Shi and Wang will receive some relief and comfort, however cold, from Yahoo. “But we certainly don’t want to see companies viewing this settlement as an easy way out,” cautioned Amy O’Meara, who heads Amnesty International USA’s Business and Human Rights Program. “We don’t want them saying we can just settle these kinds of lawsuits, put these problems behind them, and not really deal with the complex problems of censorship seriously.”

In a statement released today, Congressman and senior committee member Chris Smith commended Yahoo for settling the lawsuit. But he cautioned that “convening a Congressional hearing every time a U.S. company helps put a human-rights activist in jail should not be their only means of securing justice.” He then touted legislation that he is sponsoring, the Global Online Freedom Act. The measure, Smith noted, would “make certain that U.S. companies are not compelled to comply with local Secret Police or any other unlawful policies when operating in foreign markets.”

Democrat Tom Lantos, the committee chairman, was less forgiving:

“It took a tongue-lashing from Congress before these high-tech titans did the right thing and coughed up some concrete assistance for the family of a journalist whom Yahoo had helped send to jail. What a disgrace. When I asked Yahoo officials 21 months ago whether the company had reached out to the family to offer help, I was appalled to learn the answer. It was infuriating last week to hear that the company still had not reached out. In my view, today’s settlement is long overdue.”