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 Salesforce.com in the Eastern District of
Texas (EDTX). In May, 2013,
Salesforce.com 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. Coupons.com
Incorporated:
(6:11-cv-06528-CJS-MWP)
- In October 2011, DSS initiated
litigation against Coupons.com alleging, among other things, that
Coupons.com 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 Coupons.com'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. Salesforce.com, 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, Salesforce.com
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.
(EDTX-6-13-cv-00919)
- 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.
(EDTX-6-14-cv-00525)
- 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
www.AuthentiGuard.com. For more information on DSS and its
subsidiaries, please visit www.DSSsecure.com. 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.
Contact Information
Investor Relations
Document Security Systems
(585) 325-3610
ir@documentsecurity.com
SOURCE Document Security Systems, Inc.