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      Unassociated Document

    June
      20,
      2008

    VIA
      EDGAR

    Securities
      and Exchange Commission

    100
      F
      Street, NE

    Washington,
      D.C. 20549

              Attention:

              Kari
                Jin

              Kathleen
                Collins

                          Re:

              Document
                Security Systems, Inc. (the “Company”)

              Form
                10-K for Fiscal Year Ended December 31, 2007 Filed March 17,
                2008

    Dear
      Staff:

    On
      behalf
      of Document Security Systems, Inc., this letter responds to the comments of
      the
      staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”)
      to the filing of the above-referenced annual report (the “Filing”), which were
      included in the Staff’s letter dated June 6, 2008 (the “Staff Letter”).

    In
      this
      letter, we have reproduced your comments and have followed each comment with
      our
      response. The numbered paragraphs of this letter set forth below correspond
      to
      the numbered paragraphs of the Staff Letter. References in the responses to
      “we,” “our,” “Company” or “us” mean Document Security Systems, Inc.

    Consolidated
      Statements of Operations, page F-4

    1. We
      note your response to our prior comment 2 with regards to your reasons for
      not
      classifying amortization of patent costs in cost of revenues. Your response,
      however, did not address why you believe the amortization of certain other
      intangibles, particularly your royalty rights and barcode technology license
      agreement, would not be considered cost of revenues. Tell us why you believe
      that classification of such amounts in operating expenses is appropriate and
      specifically tell us how you considered the guidance in Question 17 to SFAS
      86
      Staff Implementation Guide by analogy. Also, tell us the gross carrying value
      of
      the bar code technology that is included in other intangibles.

    Response:

    The
      Company acknowledges that our response did not specifically address our
      intangible assets of royalty rights and barcode technology license agreements.
      As of December 31, 2007, the Company’s royalty rights had a net carrying value
      of $18,000 and $4,500 of amortization per fiscal quarter, which the Company
      did
      not consider material for the purposes of our prior comment, or for separate
      identification in the financial statements. However, the Company acknowledges
      that under the guidance of Topic 11- B, the Company’s amortization of its
      royalty rights could be considered a direct cost of the Company’s royalty
      revenue and would classify as such if considered material. The Company’s barcode
      license is for US rights to barcode technology for the application of GSDATA1,
      a
      new global standard adopted for 2009 for barcodes that can hold significantly
      larger amounts of information. The Company expects that the adoption of this
      technology by global supply companies will lead to a significant industry
      upgrade cycle of barcode and related equipment and software in late 2008 and
      2009. The Company is currently developing products that integrate this barcode
      technology with its document security technologies and is identifying a
      marketing strategy to address this potential market. The Company has not sold
      any products that utilize the barcode technology to date. Based on the guidance
      of Topic 11-B, the Company expects that if the Company can bring this technology
      to market, then the amortization of its barcode technology license could be
      considered a direct cost of this revenue. As of December 31, 2007, the gross
      carrying value of this license was $521,000, a net carrying value of $465,000
      and generates approximately $26,000 in amortization expense per fiscal
      quarter.

    2. We
      note your responses to our prior comment 3 where you indicate that the Company
      considered Rule 5-03(b) of Regulation S-X and concluded that there are no direct
      costs associated with royalty revenues. In the future, please include a
      discussion in MD&A of the reasons why there are no costs associated with
      your royalty revenues to enable an investor to better understand the Company’s
      results of operation and current presentation in the statement of Operations.
      We
      refer you to Item 303 of Regulation S-K and SEC Release
      33-8350.

    Response:

    The
      Company will include discussion in the MD&A on direct costs, or lack
      thereof, associated with its royalty revenues in its future filings.

    3. We
      note your response to our prior comment 4 where you indicate that the Company
      capitalizes legal expenses from your patent infringement and related litigations
      based on the guidance in TPA 2260.03. Please explain in greater detail how
      you
      overcame the concept of the TPA and paragraph 247 of Concepts Statement No.
      6
      that these costs are costs of successfully
      defending the Company’s patent. In this regard, we note from page 7 of your
      response that prior to the trial stage, the Company assumes a probability factor
      of less than 50% and when a case reaches the trial stage, the Company places
      a
      probability factor of winning the trial at 50%.
      We
      also note your statement that losses in invalidity cases in additional member
      nations may cause the overall potential infringement proceeds of the ECB
      litigation (assessed
      at no more than 50% probability of success)
      to
      be reduced to a level that will result in a potential impairment. It is unclear
      how your assessments of probability factors of 50% or less at various stages
      throughout the process would lead the Company to conclude that you will
      successfully defend the patents and therefore should be capitalizing your patent
      defense costs. Please provide further analysis to support your
      conclusions.

    Response:

    The
      Company’s underlying basis for capitalizing its legal defense costs is our
      expectation that our patent infringement suit against the European Central
      Bank
      (the “ECB Litigation”) will be successful. We would not pursue such an expensive
      or time consuming undertaking unless we had a strong basis for success in our
      case. Prior to filing the ECB Litigation, the Company consulted extensively
      with
      legal counsel and performed extensive due diligence with our legal counsel
      for
      approximately one year to analyze the merits of our patent infringement case,
      and only after these efforts did we take their recommendation to proceed with
      the ECB Litigation . The Company continues to believe strongly that it will
      be
      successful in proving that its patents were infringed upon by the ECB and,
      as a
      result, will receive court-ordered damages. As a result, we feel that the
      criteria for capitalizing patent defense costs presented in TPA 2260.03 and
      Concepts Statement No. 6 has been met. In our previous response to Question
      4, a
      50% probability factor was discussed in context to our discussion of the
      methodology of our impairment testing. We use probability factors in our
      impairment test to account for unknown variables that affect the assumptions
      used in both our discounted and undiscounted cash flow analysis. In the ECB
      Litigation, the timing of the potential proceeds and the amount of the potential
      proceeds are the primary estimates used in the Company’s impairment test. As the
      ECB Litigation progresses and certain milestones are successfully met, the
      accuracy of these estimates increases, and therefore, under the Company’s
      methodology, the probability factor increases. The Company believes that it
      has
      used conservative probability factors to date in its estimates of impairment
      given the high degree of uncertainty surrounding estimates involved in
      calculating the future cash flows in the analysis. As the ECB Litigation reaches
      trial stage, the Company will be able have a much higher degree of confidence
      of
      the timing and the potential amount of the proceeds from the ECB Litigation.
      At
      that point, the Company will increase the probability factors used in its
      impairment analysis to take into account the higher degree of confidence in
      its
      estimates. In addition, as discussed in the our previous response, for
      impairment testing, the
      Company reduces the overall potential damages proceeds in the ECB Litigation
      by
      the percentage of total Euro banknote circulation estimated by the Company
      in
      the country for which it receives an adverse patent validity ruling. Thus,
      for
      the purposes of impairment testing, the Company determines whether the potential
      proceeds from successful rulings in all of the countries for which its patent
      has been held as valid is greater than the aggregate of the capitalized
      costs.

    As
      stated
      above, the Company believes very strongly that it will be able to prove that
      its
      patented technology has been infringed and will be successful in the ECB
      Litigation. However, the Company does not know the amount of damages that it
      will be able to recover in the ECB Litigation. Thus, the Company could be
      successful in its lawsuit, but recover damages that are less than the legal
      costs expended on the case. As a result, the Company believes that it should
      capitalize its legal defense costs as long as the Company believes, based on
      the
      available evidence, that its case will be successful. Furthermore, the Company
      should continuously assess the recoverability of capitalized legal defense
      costs
      under the guidance of FAS 144 as new developments in case occur.

    4. In
      addition, we note that in the first quarter of fiscal 2008, the Company
      wrote-off capitalized legal costs of $292,000 associated with the unsuccessful
      UK appeal. Please explain further why the impairment charge was limited to
      the
      costs incurred for the appeal of the UK validation claim. If the Company has
      received a final ruling from the UK courts with regards to the validity of
      your
      patent then it is unclear to the Staff why all costs incurred with regards
      to
      your UK litigation were not considered impaired. Please explain further. Also,
      please provide a breakdown of the total capitalized patent defense costs by
      jurisdiction (ie: UK, France, Germany, etc.) and tell us the amount of
      additional costs capitalized during the quarter ended March 31, 2008 and the
      costs capitalized from the quarter-end through the date of your
      response.

    Response:

              December 31,

              2007

              Additions

              March
                31,

              2008

              Additions

              June
                10,

              2008

              Infringement:

              General

              775,836

              -

              775,836

              -

              775,836

              Germany

              87,299

              129,749

              217,048

              16,663

              233,711

              Invalidity:

              Austria

              2,943

              -

              2,943

              6,343

              9,286

              Belgium

              188,123

              -

              188,123

              -

              188,123

              Dutch

              115,886

              76,742

              192,628

              2,172

              194,800

              French

              187,027

              -

              187,027

              -

              187,027

              Germany

              235,799

              -

              235,799

              -

              235,799

              Italy

              161,380

              4,940

              166,320

              (4,343

              )

              161,977

              Luxembourg

              29,008

              -

              29,008

              -

              29,008

              Spain

              59,415

              2,042

              61,457

              2,448

              63,905

              UK

              1,508,375

              -

              1,508,375

              -

              1,508,375

              Experts,
                Other

              309,926

              -

              309,926

              3,700

              313,626

              Total

             3,661,017

             213,473

             3,874,490

             26,983

              3,901,473

    As
      discussed in our previous response, the Company believes that the ECB
      Litigation, including the related validity litigations, is unique due to the
      fact that essentially the same case must be heard in nine different member
      nation courts within the European Union (“EU”). While the Company was granted an
      EU patent, there is no centralized system of patent enforcement in the EU.
      Despite the unique circumstances of the EU Patent system, it is the Company’s
      belief that the underlying economics of our case are similar to typical patent
      infringement cases brought in the US, in which both the infringement and related
      invalidity cases are considered one course of action. As displayed in the chart
      above, the Company has incurred various levels of expenses in each jurisdiction
      of the case. The costs assigned to the UK have been the largest primarily due
      to
      the fact that it was the first trial and thus, it was the case that incurred
      the
      bulk of the legal expense for the development of the core legal arguments that
      are used throughout the cases in all of the other jurisdictions. In addition,
      the Company negotiated a billing cap of $1,200,000, which the Company paid
      in
      shares of its Common Stock, with it lead counsel for costs associated with
      the
      various patent validity jurisdictions with the understanding that the bulk
      of
      the legal fees associated with these cases in all of the jurisdictions would
      be
      incurred to prepare for the UK trial. Accordingly, management has considered
      the
      amounts incurred as a unified asset related to the defense of the patent.

    As
      discussed in our previous response, the Company evaluated the effect of losing
      the UK patent validity case on the overall recoverability of its legal costs
      in
      its case against the ECB, and determined that the potential proceeds from a
      successful decision against the ECB in the remaining jurisdictions where the
      patent was still deemed valid, after subtracting the potential proceeds from
      the
      UK was still greater than the costs incurred to date in all of the
      jurisdictions. The Company capitalized costs associated directly with
      appeals to the extent there is an evident increase in the value of the
      patent. The UK appeal cost were written off upon the notification of the
      unsuccessful appeal decision.

    5. Please
      update the Staff as to the status of your ECB litigations through the date
      of
      your response.

    Response:

    The
      following current status of the ECB Litigation is from the Company’s Form 10-Q
      fo