What to do when off leash dogs charge at a puppy?

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Barked: Sun Dec 9, '12 7:53am PST 
I was walking in a local forest with my 20 week old Miniature Australian Shepherd. He was on leash as this is a bylaw in my area. Two middle aged ladies both with full grown Labs were walking with their dogs off leash. As we approached them the two Labs ran towards us, away from their owners. Worried of what the Labs would do i picked up my puppy. Both Labradors proceeded to jump on me, barking and trying to get at my puppy. The owners did little to control their dogs. One lady yelled at me to put down my dog insisting that their dogs we friendly and would not bite. I yelled back at her to restrain their dogs. Once they did me and my pup continued our walk.
My question is I've heard it's bad to pick up your puppy when another dog runs towards it because your dog senses your fear, is that true? Wouldnt it be worse to let 2 larger hyper dogs to run at and jump on a puppy? Wouldnt that make him more fearful?
I am really curiouse what others would have done in the same situation.
Side note: My dog and I attend socialization and training classes and he is well behaved around other dogs we meet on walks.