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Senate Subcommittee Investigates Patent Abuses
WASHINGTON, D.C. (11/12/13)--The Senate Commerce consumer protection subcommittee conducted a hearing on the impact of demand letters--sent by patent assertion entities (PAEs) or "patent trolls"--on small businesses, consumers, and innovators. The hearing considered whether legislation is needed to provide increased protections from patent abuses.

The volume of lawsuits against credit unions related to patents is steadily increasing, and the Credit Union National Association has called on Congress to act to address this abusive litigation. Credit unions have been sued for the use of certain ATM technologies, check imaging applications and check cashing applications, and providing members with mobile transactions through their smartphones, among other examples.

These suits, which involve so-called "patent trolls" using low-quality patents in an effort to extract settlements from credit unions, are an abuse of the patent system, CUNA has said. 

Credit unions and others have settled out of court to avoid the cost of litigation.

Other examples of alleged patent infringement that were touched on in the Thursday hearing include credit, debit, and gift card magnetic stripe technology, as well as image scanning to email technology.

In the Thursday hearing, Nebraska Attorney General John Bruning called the practices of patent trolls silent extortion. "Attorney general after attorney general is realizing that we have to band together to combat patent trolls," he added. Bruning urged the U.S. Congress to "use its subpoena powers to bring patent trolls forward to answer for their abusive practices."

Bruning explained that larger entities having earlier experience with demand letters know that once they meet the patent troll's financial demands, the trolls will "come back again and again." He argued this is why smaller companies and organizations have seen an uptick in the number of the demand letters. Patent trolls, he said, have "reached the end of their rope" and they "know the big guys have the resources to and most likely will fight, but the small guys lack the resources to fight, so they often settle."

Another witness, BrandsMartUSA Executive Vice President Larry Sinewitz, said his business has troubled demonstrating how many demand letters that it receives. "We have trouble bringing you demand letters we've settled on, because they usually include non-disclosure agreements. So if I showed you all of them it would literally open me right back up to the risk of litigation," he said.

The Innovation Act of 2013 (H.R. 3309), which was introduced by Rep. Bob Goodlatte (R-Va.) late last month, would remove some of the financial incentives sought by firms that assert low-quality patents in the hope of quick settlements. CUNA supports this bill. (See Oct. 29 News Now story: CUNA, Trades Back Goodlatte Patent Improvement Bill.)


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