Independent Newspapers failed in its appeal to the European Court of Human Rights in which it argued that Irish court safeguards against disproportionately high libel awards are inadequate.
The case was taken to the Strasbourg court over an award of £300,000 made by a jury in 1997 to former Democratic Left leader Proinsias De Rossa for libel damages over a 1992 article in the Sunday Independent written by journalist Eamon Dunphy.
The European case centred on the newspaper's objections to existing Irish libel laws and would not have affected Mr De Rossa's award, whatever the outcome.
In its submissions Independent Newspapers, supported by other national and regional newspapers, argued that the award's size was disproportionate to the damage suffered, and that it would have "a chilling effect" on the press.
However, the court rejected the contention that the damages were unique, saying that almost identical awards had been made in two other cases, while another, subsequently overturned, was almost double the size.
"Having regard to the particular circumstances of the present case, notably the measure of appellate control, and the margin of appreciation accorded to a State in this context, the court does not find that it has been demonstrated that there were ineffective or inadequate safeguards against a disproportionate award of the jury in the present case."
The Irish trial judge, said the Strasbourg court, had told the jurors that damages, if awarded, should "fairly and reasonably" compensate Mr De Rossa for the damage suffered to his reputation.
He went on to say he would not be surprised if the jury awarded damages "at the higher end of the scale", indicating that the damages would be substantial.
Independent Newspapers, which had argued that judges should be able to give juries sensible guidelines about the size of damages, said it was disappointed at the Strasbourg judgment.
Managing editor Michael Denieffe said: "We are disappointed at today's decision. Under the current libel laws, some of the information the public is receiving is many years after its sell-by-date and requires costly tribunals of inquiry to expose.
"As a result, news reporting in Ireland has been restricted by the excessive threat of legal action arising from our archaic defamation laws. This has occurred despite commitments from successive governments to address this issue.
"We take some encouragement from signals over recent days that reform of the country's libel laws will go ahead. However, action is now urgently required. In this context we are disappointed at today's decision but we remain firmly committed to continuing the campaign for law reform," he went on.
The newspaper's case was supported by the Irish Examiner, The Irish Times, Mirror Group Newspapers, Associated Newspapers (Ireland) Limited, Newsgroup Newspapers, RTÉ, National Newspapers of Ireland and the National Union of Journalists.
Last night Séamus Dooley of the NUJ said the libel law changes proposed by the Minister for Justice, Equality and Law Reform, Michael McDowell, if passed into law, would rectify the situation because judges would be able to offer such guidance.
"It would be extremely unfortunate if apparent tensions on the issue in Cabinet over privacy were to stop the defamation changes going ahead. We see the two as completely different issues."
