John Dwyer, president/CEO of $979 million New England FederalCredit Union in Williston, Vt. told Congress on Tuesday that patentabuse has become a drain on the economy by hurting small financialinstitutions.

“These letter writing campaigns work because trolls know that anearly settlement is much, much cheaper for a defendant thanfighting,” Dwyer said in his testimony before the Senate JudiciaryCommittee.

“In almost every case, just to pick up the phone to consult apatent lawyer to determine the validity of the infringement claimand evaluate the demand costs tens of thousands of dollars,” Dwyersaid.

Also Read: Trades Write Senators for Patent Reform

Dwyer, testifying on behalf of CUNA, said small financial institutions are especiallyvulnerable since they usually do not have lawyers on staff toevaluate the claims.

“Unchecked, the problem of demand letters will deterinstitutions like mine from using new technologies at all. Thetechnologies for which patent demand letters and litigation havebecome common against credit unions and community banks includesome of the things that make financial services most accessible toconsumers – ATMs, online and mobile banking, remote check capture,and check processing, just to name a few,” he said.

“CUNA has received calls from credit unions worried about makingthings like smartphone applications available to their membersbecause they are afraid of getting sued. Many institutions willdecide these technologies – however much they help their members –aren't worth the risk. If that happens, consumers lose,” headded.

CUNA supports Section 5 of the Patent Transparency andImprovements Act of 2013 as a way to combat the problem.

“The provision would clarify that the Federal Trade Commissionhas enforcement authority over patent trolls that operate in unfairor deceptive ways, but it does not provide the FTC with the abilityto make rules in this area,” Dwyer said.

“We believe the FTC should have the ability to evolve in itsenforcement powers as trolls evolve, and rulemaking authority wouldprovide the agency with the means to do this,” he said.

NAFCU also supports the legislation.

“NAFCU was pleased to see FTC policing measures included in thePatent Transparency and Improvements Act of 2013 (S. 1720),bipartisan legislation introduced by Chairman Leahy and SenatorLee,” said NAFCU Vice President of Legislative Affairs Brad Thalerin a letter to the Senate Judiciary Committee on Monday.

“We would support additional language that would help to promotedemand letter transparency by requiring certain minimum disclosuresbe made by trolls to better identify themselves, the patent inquestion, and the specific nature of the infringement beingalleged,” Thaler's letter said.

Dwyer also made some additional policy recommendations in histestimony.

“An entity that sends more than 10 demand letters in a singlecalendar year should be required to enter all letters into aregistry that would be publicly available and maintained by afederal agency, perhaps the PTO or FTC. This is important fora variety of reasons,” he said.

“First, it would provide businesses that receive a demand letterwith the ability to communicate with one another,” he said in hiswritten testimony. “A registry would also provide the FTC with theinformation it needs to conduct enforcement proceedings againstabusive trolls, and would also remove one of the biggest factors ofintimidation – the fear that you, alone, are being targeted.”