updated 5/18/2004 9:31:51 PM ET 2004-05-19T01:31:51

Done in by disputes over language and liability, European Union governments on Tuesday killed a proposal for an EU-wide patent that was a key part of their drive to make European businesses more competitive.

Ministers from the 25 EU countries did, however, reach an initial agreement on a directive backed by big European high-tech companies that would allow software that is part of a mechanical device -- such as a mobile phone -- to be patented.

Their agreement omits amendments added last year by the European Parliament, largely supported by smaller businesses and advocates of "open source" software, setting the stage for a showdown in conciliation this fall.

On the EU-wide patent, diplomats said Germany, Spain, France and Portugal voted against a compromise put forward by Ireland, which holds the EU presidency. Italy abstained. Unanimity was required for passage.

It was not immediately clear what would happen now. An Irish spokeswoman said it would be up to the EU's executive Commission to decide whether to draft a new proposal. A Commission spokesman said no decision had been made.

EU leaders made the patent issue a "top priority" in 2000 as part of a program to make their economy the world's most dynamic by 2010. They have missed several deadlines.

The EU-wide patent was intended to drive down costs. The European patent now available, which covers five EU countries, is about five times as expensive as patents in the United States or Japan.

The commission says an EU-wide patent would cut the average EU cost in half and cover all 25 EU countries. Yet, language has proved the major holdup.

Last year, governments agreed that patents would be submitted only in English, French and German instead of all official EU languages. But the deal required the part of the patent that describes the invention -- known as the claim -- to be translated into all 20 official languages.

Spain demanded all translations be considered legally binding. Germany objected, backed by business groups that warned it would increase costs and uncertainty to such an extent that no one would use it.

A compromise would have left the issue to courts to decide, but both sides refused to budge.

Germany also is seen as especially reluctant to give up its regional patent courts -- a lucrative source of jobs and revenue. About half of all discoveries in the EU are registered now in Germany, where some 70 percent of disputes are adjudicated.

On software, the EU aims to harmonize how national patent laws deal with so-called "computer-implemented inventions," while avoiding any "drift" toward the U.S. system that allows patenting of business methods or computer programs such as Amazon's "one-click" shopping technique.

Opponents of software patents argued it would stifle innovation and restrict research, and persuaded lawmakers to broaden the exemptions from patentability.

But big firms like Nokia, Ericsson, Siemens, Philips and Alcatel warned last November that billions in research and development spending would be wasted if they were denied access to patent protection.

EU Internal Market Commissioner Frits Bolkestein said Parliament's version went "beyond what was required to set the right balance between rewarding inventors for their efforts and allowing competitors to build on these inventions, and could ultimately harm EU competitiveness."

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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