A credit union executive told the Senate Judiciary Committee Tuesday that so-called patent troll abuse is harming credit unions and other small financial institutions.
John Dwyer, the president and chief executive officer of New England Federal Credit Union, said, "The patent troll business model has become a drain on the economy, one that tens of thousands of American financial institutions and small businesses hope this Committee will commit to stopping."
Representing CUNA, Dwyer was the only financial services representative who testified at the hearing.
Dwyer, whose $980 million-asset credit union is based in Williston, Vt., said that if left unchecked, patent trolls could deter institutions from pursuing new technologies, in part because technology vendors "often refuse to stand by it when an infringement claim is brought."
He emphasized that small FIs are particularly vulnerable.
"Banks and credit unions are filled with staff in the business of managing risk, and in targeting small institutions that may not have a lawyer on staff competent to evaluate the claims, demand letters are sure to reach a captive mass of people who will be afraid of getting sued. Community bank and credit union CEOs like me will be willing to do almost anything to avoid the risk and uncertainty litigation creates."
Earlier this month, the House of Representatives passed the Innovation Act, which is designed to deter the efforts patent trolls, who critics say abuse patent ownership for financial gain.
Dwyer suggested to the panel the possibility of creating a federal registry to maintain letters from patent trolls to institutions.
Not only would it allow businesses the ability to communicate with one another, he said, but "a registry would also provide the FTC with the information it needs to conduct enforcement proceedings against abusive trolls, and would also remove one of the biggest factors of intimidation — the fear that you, alone, are being targeted."
In advance of today's Senate hearing, Brad Thaler, vice president, legislative affairs at the National Association of Federal Credit Unions, issued a letter to the Senate Judiciary Committee.
Reporting to the committee that increasing numbers of credit unions are receiving demand letters from law firms representing patent trolls claiming infringement and offering settlement options, Thaler's letter told Chairman Patrick Leahy and Ranking Member Charles Grassley that these trolls "use the threat of litigation as leverage to extract payment from the recipient business who settles in lieu of running the risk of a complex and lengthy legal battle."
Thaler urged the Judiciary Committee to include provisions in a new patent system that would provide the FTC with further direction to pursue "unfair and deceptive demand letters … routinely sen[t] to unsuspecting businesses and nonprofits across the country.
"We would support additional language that would help to promote demand letter transparency by requiring certain minimum disclosures be made by trolls to better identify themselves, the patent in question, and the specific nature of the infringement being alleged," wrote Thaler.
"Financial institutions of all sizes find themselves in litigation as end users since a bulk of the business method patents claim a method or process implemented through some type of technology," Thaler's letter said. "Because technology providers are unlikely to voluntarily step into a suit and stand in place of their clients, we believe adding a 'mandatory joinder' to the patent law would more accurately distribute risk between all parties involved."
NAFCU and CUNA were joined in their support for patent troll reform by the American Bankers Association, the Independent Community Bankers of America, National Association of Mutual Insurance Companies, NACHA - The Electronic Payments Association, and more.