A move by the European Union (EU) towards US-style software patents could stifle innovation and squeeze smaller software companies, critics have warned.

The European Parliament is due to vote today on the proposed Directive on the Patentability of Computer-Implemented Inventions.

In most EU countries, software is currently treated in a similar way to written works, with copyright protection. The Directive seeks to introduce patenting while harmonising variations between member nations.

Last year Arlene McCarthy, MEP for the North West of England, submitted a report for the European Parliament's Committee for Judicial Affairs and Internal Market (JURI), strongly recommending software patenting. She now has responsibility for the Directive becoming EU law.

But critics have warned that the Directive will hit small companies hard.

Jeremy Newton, technology group partner at law firm Nabarro Nathanson, said: "To go out and seek patent protection is costly and very demanding. Smaller companies will say, 'we can't afford this protection'. That's a fact of life."

But he added that many software companies with an already strong market position supported the bill. "Software evolves very quickly and patents typically last 25 years. Do you need that degree of protection?" he said.

John Holden, senior research analyst at Butler Group, questioned whether sufficient thought had been given to the legislation, but added: "In principle we are in favour of harmonisation across Europe, but not so that it goes into a US-style mess."

But he added that legislation had not stopped innovation in the US, and the option remained to put software in the public domain.

A protest against the bill took place outside the European Parliament in Brussels last week, organised by open source organisation EuroLinux and the Foundation for a Free Information Infrastructure. EuroLinux also collected 180,000 signatures in an online petition.

Last Monday, 12 leading European economists also sent an open letter to the European Parliament urging rejection of the Directive, warning that it would produce "extensive portfolios of software patents" favouring large corporations.

"The exploitation of these portfolios will have serious detrimental effects on European innovation, growth, and competitiveness," the letter said.

"While some small and medium-sized firms will be able to prosper in this environment, many will not."