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    September
      11, 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 August 13, 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.

              1.

              We
                note your response to prior comment 2 where you indicate that the
                decision
                to capitalize the Company’s patent defense costs was based on the
                assumption that the patent infringement lawsuit against the ECB will
                ultimately be successful. Please explain further the following regarding
                your assessment of success:

              ·

              Describe,
                in detail, specific compelling evidence you relied on at the outset
                of
                your infringement case to support your assertion that it is probable
                the
                Company will prevail in the
                case.

    Response:

    The
      evidence that supports our case is extensive, with many of the documents being
      very technical and/or subject to attorney-client privilege or only
      understandable to those knowledgeable in the art of printing. As a summary,
      the
      Company’s confidence in the ultimate success of our case is based on two basic
      facts.

    First,
      the Company’s case is based on a relationship of the inventor of the Company’s
      patent, and the inventor’s predecessors, with various representatives of
      European currency printers, consultants, and other participants during the
      late
      1990’s in regard to the industry’s attempts to defeat new advanced levels of
      copier and scanning technologies that were then emerging in the marketplace.
      The
      inventor of the DSS’s patent had a proven history of success in
      anti-counterfeiting technology, and was seen as a source for these industry
      participants to help solve these challenges. The Company believes that it can
      establish a direct link between these communications and the unauthorized use
      of
      the technology by these industry participants in the design and production
      of
      the Euro, which was designed in the late 1990’s and was initially released for
      circulation in 2002.

    Prior
      to
      filing the case, we completed transactions with several persons and entities
      who
      had owned various degrees of economic rights associated with any proceeds from
      a
      successful litigation action associated with the infringement of several
      patents, including the patent at issue in our case against the European
      Central Bank (“ECB”). We entered into these transactions with the specific
      purpose of pursuing litigation against infringers of these patents, based on
      our
      analysis of the potential infringement situations, and our understanding of
      the
      historical relationship between the inventors and the potentially infringing
      parties.

    In
      addition, prior to filing the ECB litigation, the Company consulted
      extensively with legal counsel and experts and performed extensive due diligence
      with our legal counsel and experts for approximately one year to analyze
      the merits of our patent infringement case, and only after these efforts did
      we
      take our legal counsel’s and experts’ recommendation to proceed with the ECB
      Litigation.
      The
      costs of this work was expensed as incurred. During this time, the
      Company,
      its
      legal counsel, and various industry experts concluded that the Company’s
      patented solutions for creating a moire effect in copied documents are evident
      in very specific areas of the artwork on the various Euro banknotes. These
      areas
      of artwork contain printed lines in the exact frequencies and configurations
      that our inventor discovered and patented as the method to create distractions
      in a copied version of the note. Furthermore, these lines have no artistic
      or
      other value, other than as an anti-counterfeiting measure, as they do not adhere
      to the depth and the dimensions of the art. (i.e.- the design of a bridge which
      does not adhere to dimensional rules for the specific purpose of containing
      lines in the banknote that are at the same frequencies and configurations of
      the
      Company’s patent).

    This
      was
      part of the evidence that led the Company’s legal counsel, McDermott, Will &
Emery LLP (“MWE”), to express confidence in the Company’s infringement case.
      While much of the communications between the Company and MWE are subject to
      attorney-client privilege, the following quote was provided by MWE for inclusion
      in a press release issued by the Company on March 30, 2006, which was filed
      with
      the Securities and Exchange Commission on Form 8-K on March 30, 2006, and
      therefore is not subject to attorney-client privilege:

    Larry
      Cohen of the law firm McDermott Will & Emery UK LLP, representing DSSI in
      the lawsuit, said "We have reviewed the ECB’s prior art and other submissions
      and we are confident that we can prevail. The ECB will have to persuade the
      various European Courts to overturn the Technical Board of Appeal of the
      European Patent Office’s previous ruling as well as explain how a 1979 Swiss
      bank note was designed with a device to show up digitally scanned material
      using
      color copiers and digital scanners when we understand there were none in
      existence at that time. We welcome their filing since now we know what they
      will
      be throwing at us and we believe we can deal with it.”

    This
      quote of Larry Cohen is consistent with advice provided by MWE prior to and
      after the filing of the lawsuit by the Company. The Company views the
      willingness of a firm such as MWE to publicly state its confidence in the case
      as out of the ordinary and an indicia of the strength of the case. MWE’s
      confidence in the case was a factor in the Company determining that it would
      likely be successful in the litigation.

        2

    Taking
      into account the above-referenced information and upon advise of legal counsel
      and experts in the field prior to the filing of the lawsuit, the Company
      determined that it had a valid patent and that the defendant’s products
      contained the technology on an unauthorized basis in an infringing manner.
      Accordingly, the Company was confident at the outset of its case that it would
      prevail.

              ·

              Tell
                us how you applied this evidence when you -initially
                began deferring the patent defense costs
                and
                how you concluded on a continuing basis that success of the infringement
                case was probable. Describe any material changes in circumstances,
                assumptions, or factors considered throughout the process and their
                impact
                on your probability
                assessment.

    Response:

    We
      based
      our decision to defer the costs associated with this case on the principal
      that
      successful patent defense costs are capitalizable. Based on the evidence
      described above, and the advice of our counsel and experts, we have believed
      from the outset of this case that we will be able to prove in court that the
      ECB
      infringed our patent on its Euro notes by using our technology in the design
      of
      the notes for the specific purpose of making the notes difficult to copy, and
      therefore our infringement case would be successful.

    Since
      the
      case was filed, the Company has not seen any evidence from the ECB that
      specifically addresses the Company’s infringement assertions. Thus far in the
      case, the ECB’s efforts in response to the suit has been a) challenge the
      patent’s validity, and b) challenge the jurisdiction of the infringement suit.
      These tactics have made the case more expensive and time consuming than
      originally forecasted by the Company.

    The
      most
      significant events in the case since it was filed have been the challenges
      of
      patent validity by the ECB. The Company believes that the ECB’s challenge of
      patent validity represents the biggest hurdle to a successful outcome. To date,
      there have been two adverse rulings and two positive rulings in regard to the
      patent’s validity. As described below and in our previous response to the Staff,
      the European court system for patent disputes is unique as it separates
      jurisdiction to its member states despite a having unified patent application
      and approval system. As a case in point, on March 26, 2007, the Company’s patent
      was deemed invalid in the United Kingdom and then on the immediately following
      day, on
      March
      27, 2007, the Company’s patent was ruled as valid in Germany. In addition, on
      January 9, 2008 the French Court held that the patent was invalid in France
      for
      the same reasons given by the English Court. On March 12, 2008 the Dutch Court,
      having considered the English, German and French decisions, ruled that the
      Patent is valid in the Netherlands.

    In
      addition, all of the technical aspects of the patent were deemed valid by every
      European court that has ruled on the validity of the patent, including the
      Franch and UK courts. The only validity issue of the patent that the French
      and
      UK courts ruled against us was a patent procedural process called “added
      matter”, which is subjective in nature. Therefore, the Company was successful in
      all courts on the technical merits of the patent (obviousness, prior art, etc.)
      The courts in Germany and the Netherlands held that the “added matter” was
      procedurally proper, as well as approving all technical aspects of the patent.
      The importance of the technical aspects of the patent will weigh more in the
      forthcoming infringement trials as our experts and the courts have all agreed
      that the patent meets all technical requirements.

    When
      we
      assess the impact of these decisions, the Company understands that the adverse
      rulings on validity mean that the Company will not be able to file infringement
      lawsuits in those jurisdictions, and assessed these material changes in its
      analysis of the potential proceeds of its case. Had the Company experienced
      its
      loss in the United Kingdom in a reporting period prior to its win in Germany,
      then the Company would have considered the need to record an impairment on
      its asset. However, the win in Germany, which has the largest volume of
      circulation of the European banknotes, had a significant positive impact on
      the
      Company’s analysis of cash flows associated with the case. Furthermore, the
      Company understands that a successful infringement ruling in any one of the
      jurisdictions of the European Union will have a similar impact as if the Company
      was successful in all of the jurisdictions of the case, since the ECB would
      have
      to either remove the technology from its banknotes, produce different banknotes
      depending on the jurisdiction in which the banknote is circulated or pay a
      licensing fee to continue to use the Company’s patented technology. The Company
      believes that if it is successful in its litigation against the ECB, the ECB
      would address the going-forward use of the Company’s technology in its
      banknotes, either through a license or settlement, regardless if the Company
      wins in one jurisdiction or all nine. Regardless of the ECB’s decision on how to
      address a going-forward usage of the Company’s technology, if the Company is
      successful in its litigation against the ECB, a court would impose damages
      on
      the ECB for prior, unauthorized usage of the Company’s patent.

        3

    Furthermore,
      as the case has progressed, the Company has recently received an opinion by
      another expert - this expert based in Germany, where the patent has been
      held valid, and
      applying German law - that supports its infringement claims. In addition, the
      Company has recently entered into an agreement with a third party investor
      which
      will provide significant funds towards the pursuit of the Company’s current and
      future validity and infringement claims in exchange for 50% of the gross
      proceeds. The Company filed a Form 8-K with the Securities and Exchange
      Commission on August 20, 2008 describing this transaction. Prior to entering
      into this agreement, the investor and its legal team performed significant
      due
      diligence into the merits of the Company’s case, including extensive discussions
      with the Company’s legal team, experts, and others involved in the case. The
      Company believes that the decision of the investor to put forth substantial
      resources into the case further supports the Company’s belief that it will be
      successful in its case.

              ·

              Explain
                further how the Company determined that victories on the validity
                trials
                in certain jurisdictions are “strong indicators” that you will be
                successful in the infringement case and how you determined the probability
                of such success. Further tell us how your analysis for probability
                of
                success is impacted when you lose the validity cases in other
                jurisdictions.

    Response:

    As
      discussed above, the Company believes that it will be able to prove infringement
      of its patent. Overcoming the hurdles of the validity challenges are a threshold
      issue to allow the Company to move to trial on infringement. As described above,
      the Company believes that its infringement case needs only to be successful
      in
      only one of the ECB’s jurisdictions in order to successfully extend the economic
      benefits of the patent, and as a result, losing one or more validity cases
      does
      not impact the Company’s assessment that it will be successful in its
      infringement suit in the jurisdictions where its patent has been held valid
      (i.e., Germany and The Netherlands to date). The effect of success in any of
      these jurisdictions or others will have the same impact as if the European
      Union
      has a unified patent court system. The loss of a