The EU has once again delayed a crucial decision on software patent legislation.

The Council of Ministers, which represents national governments, was due to adopt a controversial version of IT patent legislation later this week, but the decision has now been withdrawn from the meeting agenda.

Opponents of the draft directive say it would allow software code to be patented, harming small software developers that could not afford to pay to acquire licences or fight costly legal battles to use certain software. Large European IT firms say the legislation is essential to protect innovation and provide legal certainty.

A version of the directive was provisionally agreed to by ministers in May 2004, but it needs formal adoption before the next stage of the process begins.

Luxembourg, which currently holds the EU presidency and sets the agenda, planned to have the agreement from May approved by finance ministers at next week's meeting, after Poland decided to stop blocking the version. Poland had been holding it up over concerns about the impact on small and medium-sized businesses, but changed its position.

However, Luxembourg appears to be bowing to political opposition and has decided to withdraw the item from the Council agenda. Florian Müller of the campaign said that the decision to remove the item from the Council agenda was a "major blow".

EU Internal Market Commissioner Charlie McCreevy, whose predecessor tabled the original proposal, said on Friday that the Commission "regrets" that the software patent matter will not be on the agenda, especially as remaining objections from countries like Poland had been removed. He said he is prepared to work to resolve the issue.

This week the Dutch government emerged as the latest opponent of the May agreement after a vote in Parliament asked the government not to support the agreement. The Spanish Senate also voted to reject the current deal, while the German Bundestag is to debate the issue on 17 February. There is expected to be cross-party support for a motion calling on the government to withdraw support for the May deal.

Until the May agreement is approved, the directive is effectively blocked. Under the EU's co-decision procedure, new legislation has to be jointly agreed by the European Parliament, made up of directly elected representatives, and the Council of Ministers, made up of national governments.

Members of the European Parliament have already tried to amend the draft legislation to exclude software, but their changes were rejected by the Council, which shared the view of many large IT firms that Parliament's version would not offer effective patent protection for innovators.

The next step would be for the European Parliament to give its opinion on the revisions made by the Council in a second reading. The two bodies will then try and resolve their differences over the legislation, but the May agreement first must be formally adopted.

In the meantime, the European Parliament's legal affairs committee voted overwhelmingly last week to invoke a rarely used legal device to ask the Commission to represent its proposal and effectively restart the entire legal process from scratch, setting it back eighteen months.

The decision to make a formal request to the Commission will be taken by the Parliament's President Josep Borrell following a meeting with the leaders of Parliament's political groups.

Right now, all sides are waiting to see who blinks first.