On Monday, something happened to Arnold Schwarzenegger that he rarely experienced in his movies. He lost. In 2005, while still governor of California, the star of Predator and The Terminator co-signed a law that would ban the sale of violent video games to minors in the state.

The games industry, through the Entertainment Merchants Association opposed, and on Monday, the US Supreme Court ruled that this law was a violation of the First Amendment. Following the decision, Justice Antonin Scalia stated: "Even where the protection of children is the object, the constitutional limits on governmental action apply."

The decision was greeted with barely contained delight by the games industry. The Entertainment Consumers Association said it was "thrilled", the Entertainment Software Association called it "a landmark ruling" and Electronic Arts chief John Riccitiello told website Game Politics:

Everybody wins on this decision – the Court has affirmed the Constitutional rights of game developers; adults keep the right to decide what's appropriate in their houses; and store owners can sell games without fear of criminal prosecution.

But naturally, there is a certain amount of discontent. Two Justices dissented on the vote, which ended 7-2 in favour of the Entertainment Merchants Association. One, Stephen Brayer, said: "What sense does it make to forbid selling to a 13-year-old boy a magazine with an image of a nude woman, while protecting the sale to that 13-year-old of an interactive video game in which he actively, but virtually, binds and gags the woman, then tortures and kills her?"

California state senator Leland Yee, who penned the 2005 law, also questioned the ruling; he has vowed to fight on. "As a result of their decision," he told PC Magazine, "Wal-Mart and the video game industry will continue to make billions of dollars at the expense of our kids' mental health and the safety of our community. It is simply wrong that the video game industry can be allowed to put their profit margins over the rights of parents and the well-being of children."

Yee is considering rewriting the law, focusing it more tightly (perhaps on specific depictions of violent acts) so that it can pass untested. His hopes have been raised by two Justices, Chief Justice John Roberts and Justice Samuel Alito, who reportedly stated that they would reconsider if the law was trimmed or re-defined. Alito expressed afterwards: "I would not squelch legislative efforts to deal with what is perceived by some to be a significant and developing social problem."

It's an ambiguous and complex situation that contrasts sharply with entertainment classification systems in UK, where the rating of movies and video games is more closely enforced. In the US, the Entertainment Software Rating Board oversees an entirely voluntary ratings system, with no legal powers of censure over retailers, even when a title is rated AO, or "adults only". The ESRB requests that participating stores ask for parental permission before selling Mature or AO rated games, but failure to comply is not legally enforceable. The 2005 law would have hit stores with a $1,000 fine for selling mature titles to under-17s.

Now, the ESRB claims high levels of retailer compliance throughout the country and also points to statistics that show the effectiveness of its awareness system with parents. But in Britain, the Europe-wide voluntary classification system PEGI is accompanied by the requirement to have enforceable BBFC age-ratings on products that demand a 15 certificate or over. Stores in the UK can be prosecuted for selling 15- or 18-certificate movies or games to under-age customers.

Amid all the talk of victory, let's not forget that the EMA is a trade organisation not a free speech campaigner and that it represents an industry that would potentially lose billions in revenue if sales of games were to be restricted as they are in Britain. I personally have no problem with the UK set-up – despite increased parental understanding of games classification, there are still plenty who would allow their children to play 18-certificate games and I'm not at all comfortable with that.

However, in the US, there is a more pernicious struggle between the religious right and the liberal entertainment media. Many feared the California law could be the start of a slippery slope toward wider censorship measures. Interpretations of the first amendment are being tested and subjectified – if the concept of free speech starts being chopped up, goes the liberal argument, where does the process of ratification end?

There is also the possibility of de facto censorship. It's likely that if a classification law was passed nationally, large retailers such as Walmart would limit their stock of games with legally enforceable age ratings; as a result, publishers would make less money from mature-rated games and their development could be sidelined. The US is the world's largest market for retail titles, so perhaps we'd all see less titles like Grand Theft Auto, Bodycount and Call of Duty.

And then we have the added complication of downloadable content. Presumably, the law wouldn't just have affected retail packaged games; it would have applied to titles bought over streaming services such as Steam or the Xbox Live Arcade. Vindicia, a company the provides billing systems for games publishers, filed an amicus curiae brief to the court in support of the EMA case. The company's CEO Gene Hoffman pointed out that age-verification processes are problematic to instigate, and can easily be circumnavigated by determined tech-savvy children. He suggested that current parental control features and filtering software were doing the job.

He also stated,

"If the ban was enforced, the increasingly popular 'freemium' business model for game publishers would have been jeopardised. For this business model to work, players need to be able to access a sample of content without going through a restrictive age-verification process, and without having to provide credit card details up front (unless children know their parents' credit card details, this requirement might also otherwise prevent access by children to inappropriate content)."

So there are other factors in the argument against Schwarzenegger's proposed law. It's not just about protecting retail game sales, it's about the evolving culture of game design and game distribution. And at the base of everything is the simple proposition that violent games should be considered in parity with violent movies – should any law require the classification of one entertainment media platform while ignoring others?

The one certainty is that, although this ruling is an important milestone for the games industry in the US, it's unlikely to shut the door on future legislative efforts. It also raises important and uncomfortable questions about the whole concept of free speech in the digital era. This is a victory for the games industry, but its consequences and meanings remain uncertain.