November 28, 2006
Internationally Recognized Law Firm Expresses High Degree of Confidence that Patent Validity and Infringement Can Be Established
ROCHESTER, NY, November 28, 2006 – Document Security Systems, Inc. (AMEX: DMC) (“DSS”), a leader in proven, patented protection against counterfeiting and unauthorized copying, scanning and photo imaging, elaborated on its agreement with McDermott Will & Emery, LLP, (“MWE”), the internationally renowned law firm representing the Company on its patent validity and infringement suit against the European Central Bank (“ECB”). MWE has chosen to accept DSS common stock as payment for its outstanding and future fees for its legal services in the suit. The shares will be issued during the course of the litigation at market value for certain fees as incurred by MWE in connection with the litigation.
Laurence Cohen, Partner, McDermott, Will & Emery UK, LLP, commented, “Based on our extensive due-diligence prior to filing the infringement suit, and especially after having reviewed both parties’ expert opinions on validity which were recently filed with the English High Court, we believe DSS has a compelling case against the ECB. Our view is that there has been infringement of a valid patent that requires compensation for past and future use.”
Patrick White, Chairman, President and CEO, commented, “McDermott, Will & Emery has done an outstanding job in its efforts to pursue the protection of our technologies. Its acceptance of stock as remuneration clearly aligns their interest in the case with our shareholders. MWE’s commitment to the case is a strong message that we have the resources to see this case to its conclusion. MWE’s commitment also confirms our belief that our case is valid and should not be taken lightly. We are pleased to have such a prestigious intellectual property litigation team on our side.”
Mr White added, “We will not accept the use of our patented technologies by any person or entity on an unauthorized basis, and we are determined to realize the fair and proper value of our intellectual property for the benefit of our shareholders.”
The agreement with MWE allows DSS to use its common stock to eliminate the Company’s cash requirements for MWE’s legal fees related to the ECB litigation, not to exceed $1.2 million in stock. If any legal services are provided for these cases by MWE over the $1.2 million cap, those fees will not be charged to DSS. Initially, 47,015 restricted shares will be issued to MWE under the agreement to cover all outstanding MWE legal fees that were incurred through September 2006.
Mr White concluded, “DSS is rich in anti-counterfeiting patents and the Company dominates the optical deterrent technology field. The world’s security printers have been utilizing our older technologies for years as evidenced by various experts who confirmed that DSS technology has been used on major world currencies since the mid-1990s. No matter what the decision is in this required litigation process, DSS will continue to flourish for many years as our new, more powerful anti-counterfeiting technologies are marketed and adopted around the world.”
ECB Litigation Update
The ECB litigation has two components: the original infringement suit commenced by DSS in the Court of First Instance on August 1, 2005, and counterclaims alleging patent invalidity commenced by the ECB in nine national European courts on March 24, 2006. The infringement and validity cases are presently bifurcated, which means that each such part of the ECB case is being heard in different courts.
Claims of Patent Invalidity
In the invalidity cases, expert opinions regarding the validity of DSS’s European patent have been submitted by DSS and ECB to the English court, where the first case on validity is taking place. DSS is very comfortable with the evidence submitted by each side’s expert, both of whom were working in the anti-counterfeiting field at the date of the patent and were similarly challenged at that time by the problems that DSS’s patent solved. DSS remains confident that the main issue presented by the ECB for invalidity, which includes the claims of lack of novelty and obviousness based on prior art, has been refuted by the evidence that has been assembled. The first hearing in the invalidity suits is scheduled to begin in London, England on January 22, 2007, and is expected to last for a week. A judgment could take a further 60-90 days and any subsequent appeal process could take a further year to complete.
If DSS wins on validity in at least one court, a valid patent will exist, which could affect the movement and use of Euro banknotes. In contrast, the ECB must win in all nine national courts to receive a complete invalidity verdict.
Patent infringement
The appropriate venue has not yet been determined for the hearing of DSS’s infringement suit. DSS filed the suit in the Court of First Instance (“CFI”), which DSS believes is the appropriate venue. The ECB has challenged the jurisdiction of the CFI, which DSS has been advised contradicts EU Treaties. DSS had expected that the CFI would hear and adjudicate this issue by June 2006, but the CFI has still not given its judgment.
History
On August 1, 2005, Document Security Systems filed a patent infringement suit in the Court of First Instance against the European Central Bank alleging that the Euro banknotes produced by the ECB infringe DSS's European Patent No 0455750B1 (the “Patent”). On October 20, 2005, the ECB challenged the venue of the lawsuit by arguing that each EU national court where DSS has a patent, not the CFI, was the proper venue. DSS replied to the court in December 2005 that the CFI is the proper venue for the suit based on jurisdiction conferred by EU Treaties.
On March 24, 2006, DSS received notice that the ECB had filed separate counterclaim lawsuits in the United Kingdom and Luxembourg patent courts (Luxembourg being the seat of the CFI) seeking the invalidation of the Patent. Claims to invalidity, largely in the same form, in the Netherlands, Germany, Austria, Italy, Spain, Belgium and France were subsequently served. The main basis of the ECB’s claim for invalidity in each of these courts is the existence of prior art and obviousness. Another basis for the invalidity claim is that the scope of the Patent was extended during prosecution, which in Europe is a ground of invalidity. DSS is confident in its position on invalidity because the patents in question were already upheld by the Technical Board of Appeals of the European Patent Office, effectively on the same grounds and without new, good prior art being submitted by the ECB. Three of the prior art citations of the ECB were actually considered during the original patent application for DSS’s Patent and have already been rejected as grounds for invalidating the Patent by the European Patent Office. One of these potential "prior art" citations was rejected as prior art in examination and the other two were reviewed and rejected as prior art by the Technical Board of Appeals of the European Patent Office. In addition, the ECB has presented a 1979 Swiss banknote that allegedly is relevant prior art to the technologies that DSS claims in the Patent even though the Swiss banknote cited dates from a time when scanners and digital color copiers were not developed or in use. DSS is confident that this added matter claim will also be rejected for these reasons, not the least of which is that it was considered by the Technical Board of Appeals of the European Patent Office in its decision to grant the Patent.
In addition to these actions, DSS has sent letters to six printing companies involved in the production of the Euro to notify them of its belief of the printers’ involvement in the infringement of the patent, the ECB lawsuit and that we will pursue all legal means to address these matters. Those companies include De La Rue, François-Charles Oberthur Fiduciaire, AGFA, Joh. Enschedé, Setec (a Gemplus company) and Oesterreichische Banknoten. DSS believes that the ECB and its printers are acting in concert in seeking to protect their joint and collective interests.
Teleconference and Webcast
The Company will be hosting a teleconference today at 4:30 p.m. to discuss the MWE agreement and the ECB patent and validity lawsuits. Scheduled to be on the call are Patrick White, Chairman and Chief Executive Officer, Peter Ettinger, President, David Wicker, VP Technology, Michael Hughes, Corporate Counsel and Laurence Cohen, Partner, McDermott Will & Emery, UK LLP, lead attorney for DSS in its lawsuit against the European Central Bank.
The live webcast can be accessed via the Internet at http://www.documentsecurity.com. Participants should go to the website 10-15 minutes prior to the scheduled conference in order to download any necessary audio software.
The teleconference can be accessed via telephone by calling (913) 981-5581 approximately 5-10 minutes prior to the call.
An archive of the call will be available on the Company’s website. A telephonic replay can also be heard by calling (719) 457-0820 and entering passcode 9341856. The telephonic replay will be available from 7:30 p.m. ET the day of the teleconference through Tuesday, December 12, 2006 at 12:00 a.m. ET.
About Document Security Systems, Inc.
A rapidly growing security technology company, Document Security Systems is a world leader in the development of optical deterrent technologies that help prevent counterfeiting and brand fraud from the use of the most advanced scanners, copiers and imaging systems in the market. The Company’s patented and patent-pending technologies protect valuable documents and printed products from counterfeiters and identity thieves. Document Security Systems’ customers, which include international governments, major corporations and world financial institutions, use its covert and overt technologies to protect a number of applications including, but not limited to, currency, vital records, brand protection, ID Cards, internet commerce, passports and gift certificates. Document Security Systems’ strategy is to become the world’s leading producer of cutting-edge security technologies for paper, plastic and electronically generated printed assets. More information about Document Security Systems can be found at its websites: www.documentsecurity.com and www.plasticprintingprofessionals.com.
About McDermott, Will & Emery LLP
McDermott Will & Emery is a premier international law firm with a diversified business practice. Numbering more than 1000 lawyers, it has offices in Boston, Brussels, Chicago, Düsseldorf, London, Los Angeles, Miami, Munich, New York, Orange County, Rome, San Diego, Silicon Valley and Washington, D.C. The Firm has 70 years of experience serving a broad range of client interests. Its understanding of corporate decision makers is the result of many of its lawyers having held key government and corporate positions.
Safe Harbor Statement
This release contains forward-looking statements regarding expectations for future financial performance, which involve uncertainty and risk. It is possible the Company's future financial performance may differ from expectations due to a variety of factors including, but not limited to, changes in economic and business conditions in the world, increased competitive activity, achieving sales levels to fulfill revenue expectations, consolidation among its competitors and customers, technology advancements, unexpected costs and charges, adequate funding for plans, changes in interest and foreign exchange rates, regulatory and other approvals and failure to implement all plans, for whatever reason. It is not possible to foresee or identify all such factors. Any forward-looking statements in this report are based on current conditions; expected future developments and other factors it believes are appropriate in the circumstances. Prospective investors are cautioned that such statements are not a guarantee of future performance and actual results or developments may differ materially from those projected. The Company makes no commitment to update any forward-looking statement included herein, or disclose any facts, events or circumstances that may affect the accuracy of any forward-looking statement.
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