ROCHESTER, N.Y., Sept. 22, 2014 /PRNewswire/ -- Document Security Systems, Inc. (DSS) (NYSE MKT: DSS), a leading developer of anti-counterfeiting and authentication solutions and licensor of innovative technologies, provided an update on the status of its investment in VirtualAgility, Inc. (VirtualAgility) and highlighted recent events in its patent enforcement efforts.

DSS's Investment in VirtualAgility:

In March 2013, DSS Technology Management, (formerly known as Lexington Technology Management), which DSS acquired on July 1, 2013, made an investment in VirtualAgility, a developer of user-friendly programming platforms that facilitate the creation of sophisticated business applications without programming or coding.  At the time of the investment, VirtualAgility had an ongoing patent litigation suit against in the Eastern District of Texas (EDTX). In May, 2013, filed a Petition for Covered Business Method (CBM) Review of the one VirtualAgility patent that was included in the EDTX litigation (US patent 8,095,413). The petition was granted, and ultimately, on July 7, 2014, the EDTX lawsuit was stayed by the Federal Appeals court pending final determination of the CBM Review. On July 14, 2014, the parties participated in an oral hearing at the Patent Trial and Appeal Board (PTAB) at the US Patent and Trademark Office which serves as a "trial" for the CBM Review proceeding.  On September 16th, 2014, the PTAB provided its decision, which found the VirtualAgility patent to be invalid under the patent-eligibility (Section 101) standard established in Alice Corp. v. CLS Bank International, a US Supreme Court case that was decided just before the VirtualAgility hearing, in June, 2014.

The Alice court case addressed the patent eligibility of a computer-aided method of intermediated settlement, and held that the claims were invalid as being aimed at the abstract idea of intermediated settlement rather than patent eligible subject matter. When the Alice case was heard in the spring of 2014, and when decision was released in June, many industry experts predicted that it would not have a significant impact on the patentability of software. However, since the Alice case, there have been a number of high-profile patent invalidations based on a broad interpretation of the "abstract idea" exception in the federal courts and at the USPTO, and VirtualAgility's '413 patent was invalidated on similar grounds as these other cases.

The invalidation of the '413 patent effectively ends VirtualAgility's current EDTX litigation. However, only one of VirtualAgility's patents was included in this case, and the company retains its rights to five other issued patents, as well as several pending patent applications. VirtualAgility is actively evaluating its options on how to proceed with future monetization of its patent portfolio in the near and long term.

Jeff Ronaldi, DSS's CEO stated: "Obviously we are disappointed with the PTAB decision and with the general direction the courts have taken in interpreting the Alice decision, which we believe will stifle innovation, encourage anti-competitive behavior by large companies and reduce investment in important areas of technology. VirtualAgility is an important innovator in the middleware space and over the roughly twenty years of the company's existence, it has provided key technology used by the Homeland Security Department and other government agencies and has provided a number of innovation economy jobs for its committed group of entrepreneurs. The results of the PTAB decision should be profoundly disappointing to anyone who cares about the success of the US innovation economy."

Because VirtualAgility's future monetization strategy has been materially impacted, DSS filed an 8-K today with the SEC discussing a potential write-down of its investment in VirtualAgility. The initial investment in May 2013 consisted of a $200,000 non-recourse note plus an equity stake of 1/8 of 7% of the outstanding common stock of VirtualAgility, for a total cash investment of $250,000.  Each non-recourse note, when purchased, is eligible for a preferred return of $1,250,000, plus a variable return of 1.875% based on gross proceeds, if any, derived from VirtualAgility's patent portfolio.  In addition, VirtualAgility granted DSS Technology Management a total of seven additional options to make additional quarterly investments of $250,000 apiece, under the same terms as the first investment.  Also, in May 2013, DSS Technology Management created a subsidiary called VirtualAgility Technology Investment, LLC ("VATI") to house its investment in VirtualAgility. In addition, a third party investor became a member of VATI. To date, VATI has exercised six of the eight investment options for a total cash investment of $1,500,000 of which DSS contributed $750,000. As a result, VATI owned 5.25% of VirtualAgility and held notes eligible for a cumulative of $7,500,000 in preferred returns and 11.25% of variable returns from VirtualAgility's enforcement action. As June 30, 2014, the investment in VATI had an estimated fair value of $11.5 million of which DSS owned 60%. As a result of the decision by the court, DSS estimated that the fair value of VATI was impaired which will result in a net impairment charge by DSS of approximately $7 million during the third quarter of 2014.

DSS Patent Enforcement Update:

DSS's patent portfolio includes over 120 US patents across three verticals: Brand Protection, Software & Internet, and Hardware. Within these three verticals, DSS has a total of seven different active IP licensing programs. These seven programs have resulted in five active disputes to date with nine leading technology companies. 

Both of DSS's active disputes in the Software and Internet vertical (VirtualAgility and Bascom Research) have been challenged either in District court or at the USPTO based on the Supreme Court's Alice v. CLS bank decision. However, the bulk of DSS's patent portfolio (over 100 patents) relate to Hardware and Brand Protection technologies, and these assets are unlikely to be impacted by the Alice ruling because they do not contain software claims.  

Within the Hardware vertical, DSS has reached important interim milestones, including the scheduling of a Markman Hearing in its disputes with Apple and Lenovo, and the initiation of discovery in its dispute with Taiwan Semiconductor Manufacturing Company, Ltd, Samsung Electronics Corp, and NEC Corporation of America.  

Brand Protection Related Disputes:

Document Security Systems, Inc. v. Incorporated:


  • In October 2011, DSS initiated litigation against alleging, among other things, that misused DSS's proprietary Block-Out technology in violation of the terms of a nondisclosure agreement between the parties.
  • On July 10, 2014 the US District Court for the Western District of New York heard oral arguments in connection with's motion for Summary Judgment. No decision has been rendered yet on the motion.

Software & Internet- Related Disputes:

Bascom Research, LLC v. Facebook, Inc. and LinkedIn Corporation:

(CAND-3-12-cv-06293; CAND-3-12-cv-06294; PTAB-CBM2014-00138)

  • In January 2014, Facebook and LinkedIn were granted a stay pending the Supreme Court's decision in Alice Corp. v. CLS Bank International.  Following the Alice decision, the defendants requested and were granted an early summary judgment hearing on the Section 101 patent-eligibility of all four Bascom patents included in the litigation (US patents 7,111,232; 7,139,974; 7,158,971 and 7,389,241).  DSS currently expects Section 101 briefings to be exchanged in September and October 2014 with a proposed hearing on November 21st, which is subject to change.
  • On May 22, 2014, Facebook filed a Petition for Covered Business Method (CBM) Patent Review with the USPTO's Patent Trial and Appeal Board (PTAB) on US patent 7,389,241.  Bascom Research responded to the petition on September 3, 2014, and the PTAB's decision on whether or not to institute a CBM is anticipated by December 2, 2014.

VirtualAgility, Inc. v., Inc. et al

(EDTX-2-13-cv-00011; PTAB-CBM2013-00024; PTAB-CBM2014-00181)

  • On July 7, 2014, the lawsuit filed by VirtualAgility in the District Court for the Eastern District of Texas was stayed by the Federal Appeals court pending final determination of the Covered Business Method (CBM) Review of the one VirtualAgility patent in the EDTX case (US patent 8,095,413) (the "413 Patent).
  • On July 14, 2014, the parties participated in an oral hearing at the Patent Trial and Appeal Board (PTAB) at the US Patent and Trademark Office which serves as a "trial" for the CBM Review proceeding.  On September 16, 2014, the PTAB provided its decision, which found the VirtualAgility patent to be invalid under the patent-eligibility (Section 101) standard established in Alice Corp. v. CLS Bank International.
  • On August 27th, filed an additional petition for CBM review of the '413 patent. This petition was filed after the initial PTAB trial and prior to the trial decision, and it is redundant in light of the results of the initial CBM. However, VirtualAgility may file a response before November 26th, 2014 if it chooses to oppose the petition.

Hardware Related Disputes:

DSS Technology Management, Inc. v. Taiwan Semiconductor Manufacturing Company (TSMC), Samsung Electronics, Co and NEC Corporation of America.

(EDTX-2-14-cv-00199; PTAB-IPR2014-01493; PTAB-IPR2014-01030)

  • On September 9, 2014, the EDTX case against all defendants was referred to mediation which is anticipated to take place during the fourth quarter of 2014.  On September 19, 2014, the case was assigned to the Magistrate Judge, and the discovery phase of the case has been initiated. 
  • On June 24, 2014, TSMC filed a Petition for Inter Partes Review (IPR) with the USPTO's Patent Trial and Appeal Board. DSSTM has until October 17, 2014 to file a preliminary response to the IPR petition.
  • On September 12, 2014, Samsung filed a Petition for Inter Partes Review (IPR) with the USPTO's Patent Trial and Appeal Board. DSSTM has until December 11, 2014 to file a preliminary response to the IPR petition.

DSS Technology Management, Inc. (DSSTM) v. Apple, Inc.


  • On March 3, 2014, Apple, Inc. filed a Motion to Transfer Venue of the case from the Eastern District of Texas to the Northern District of California. This venue transfer motion has not yet been ruled on by the District Court for the Eastern District of Texas.
  • On September 3, 2014 the parties submitted a joint claim construction brief, and the claim construction (Markman) hearing is currently scheduled for November 6, 2014.

DSS Technology Management, Inc. (DSSTM) v. Lenovo (United States), Inc.


  • On September 18, 2014, a case scheduling conference was held, setting forth proposed dates for the remainder of the proceedings.  
  • Initial mediation in the case is scheduled for January 19, 2015. A Markman hearing is scheduled for May 2015, and trial scheduled for February 2016.

Reflecting on DSS's current portfolio and business strategy, Jeff Ronaldi, DSS's CEO stated: "Our management team has been a part of this marketplace for well over a decade and we have seen it change many times-- for better and for worse. Our feeling is that the pendulum has swung far against patentees and that this will change over time as the negative impact of current decisions and policy is realized. We remain focused on building a high quality, diversified portfolio of intellectual property through our internal R&D and via acquisitions. In spite of the important changes that have taken place to the IP landscape in 2014, we remain confident in our strategy and in our track record, and we expect that the uncertainty in the marketplace will lead to opportunities to acquire high quality IP at historically low cost. Investing in IP is a high-risk, high-return proposition and we look forward to more balanced results as our portfolio plays out over time to the benefit of our shareholders."

DSS's active disputes are also listed on the company's website here. Further information regarding patent litigation involving DSS investments is available to the public via the PACER Service here.

About Document Security Systems
Document Security Systems, Inc.'s (NYSE MKT: DSS) products and solutions are used by governments, corporations and financial institutions to defeat fraud and to protect brands and digital information from the expanding world-wide counterfeiting problem. DSS technologies help ensure the authenticity of both digital and physical financial instruments, identification documents, sensitive publications, brand packaging and websites.

DSS invests in research and development to meet the ever-changing security needs of its clients and offers licensing of its patented technologies through its subsidiary, DSS Technology Management, Inc.

For more information on the AuthentiGuard Suite, please visit For more information on DSS and its subsidiaries, please visit To follow DSS on Facebook, click here.

Forward-Looking Statements
Forward-looking statements that may be contained in this press release, including, without limitation, statements related to the Company's plans, strategies, objectives, expectations, potential value, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act and contain words such as "believes," "anticipates," "expects," "plans," "intends" and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements, other important factors, risks and uncertainties that could result in those differences include, but are not limited to, those disclosed in the "Risk Factors" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission. Forward-looking statements that may be contained in this press release are being made as of the date of its release, and the Company assumes no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements.

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Document Security Systems
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SOURCE Document Security Systems, Inc.