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    Unassociated Document

    March 27,
2009

    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

                Form
      10-Q for the Quarter Ended September 30, 2008 Filed November 10,
      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 and quarterly report (the
“Filing”), which were included in the Staff’s letter dated February 27, 2009
(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.

    Form 10-Q for the Quarter
Ended September 30, 2008

    Note 4. Other Intangible
Assets, page 9

              1.

              We
      note your response to our prior comment 2 where you indicate that the
      Company recorded the $500,000 received from Trebuchet as proceeds from the
      sale of patent assets, which resulted in a loss on sale of
      $1,170,000.  Please tell us how you determined that this
      Agreement represented a sale of an asset.    In this
      regard, tell us which accounting standard (s) you considered when you
      determined that it was appropriate to write-off $1,670,000 of the Patent
      asset.

    Response:

    The Company based its accounting treatment on fundamental
accounting concepts, including the Recognition and Measurement concepts
discussed in FASB Concepts 5.  The Company did not determine specific
accounting guidance other than FASB Concept 5 related to its transfer and assignment
of its patent rights to Trebuchet,   When evaluating the transaction, the Company
considered the following
accounting options.   The Company considered whether to treat
the $500,000 payment as a reimbursement of its capitalized patent defense costs which would have reduced the amount of
patent defense costs that were subject to
capitalization.    The Company believes that this was a
viable option had the Company not transferred a legal ownership right to its
Patent.    Furthermore, this treatment would be consistent
with how the Company expects to treat any fee reimbursements it may be awarded
in any of the jurisdictions in which it is successful in any of its validity cases, i.e. that such
fee reimbursement that it receives are not income, but rather a reduction in the
Company’s total cost of its litigation (unless the fee reimbursement is a
component of a settlement).    However, the
Company determined that the actual transfer of 49% of the Company’s patent
ownership rights differentiated the Trebuchet transactions from a simple fee
reimbursement.

    As the transaction was negotiated,
Trebuchet felt that it was important that it receive legal rights to the patent
to protect itself in the event that the Company became insolvent.   The Company did not
transfer 50% of its ownership due to the fact that a transfer of majority
ownership would have necessitated notifications and filings of ownership changes
in all of the various patent courts in which litigation is underway,
which was a process that each party did not think was prudent at
the current time.   Therefore, the transfer of 49% ownership of
the Patent was primarily a legal consideration, and did not impact the main
economic consideration of the transaction which was the grant to Trebuchet of 50% of all
proceeds from the litigation in exchange for the payment of
$500,000 and the assumption of all the future costs of the
litigation.    Had no legal ownership of the patent
been transferred, the Company believes that the transaction could have been
considered a sale of future receipts or a royalty, and the receipt of the
$500,000 would have been recorded as  royalty
revenue.  However, as the Company concluded that the actual transfer
of ownership rights was the
overriding factor in determining the accounting
treatment.    As a result, since an actual transfer of the legal right to an asset had occurred,
the Company did not believe there was any guidance or any argument that could be
made that would override the fact that ownership to a recorded asset had been
transferred in exchange for a payment.   Therefore, the Company
concluded that a sale of 49% of any asset would result in a recognition of a
gain or loss on that transaction.

              2.

              We
      also note the disclosures on page 9 where you indicate that the Company
      assigned and transferred 49% interest in the Patent to Trebuchet, which
      allows for a “separate and exclusive interest including a separate and
      distinct right to exploit the Patent”.  Please explain further
      what these terms mean.  For instance, is Trebuchet entitled to
      receive future consideration from the Company related to the Patent (such
      as a percentage of the Company’s revenues) or does Trebuchet only have the
      right to exploit the Patent without any future obligation from the
      Company.

    Response:

    In
Section 2.1 (a), the Agreement states “DSS hereby transfers and assigns to
Trebuchet 49% of all of its right, title and interest in the Patent and to the
inventions described and claimed therein, such that both DSS and Trebuchet shall
have a separate and distinct interest in and share of the Patent, along with the
right to sue and recover in litigation, settlement or otherwise to collect
royalties or other payments under or on account of the Patent and/or any of the
foregoing, subject to the provisions for sharing any said recovery including
royalties as provided in the Agreement, [Author’s note: i.e. the 50% sharing of
proceeds detailed in Section 2.4]for all past, present and future casues of
action including but not limited to actions asserting the infringement of the
Patent”

    Furthermore,
in Section 2.1(b), the Agreement states “With respect to DSS’s remaining 51%
interest in the Patent, DSS grants to Trebuchet the exclusive right and license
to sue in the name of DSS, and to recover in litigation, settlement or otherwise
to collect royalties or other payments under or on account of the Patent and/or
any of the foregoing, subject to the provisions for sharing any said recovery
including royalties as provided in this Agreement [Author’s note: i.e. the 50%
sharing of proceeds detailed in Section 2.4].

    As
described above, in its Agreement with Trebuchet, the Company gave Trebuchet a
series of rights that will allow Trebuchet to have significant flexibility for
it to pursue and manage the litigation of the patent, and any settlement
negotiations related to the litigation. The rights of Trebuchet are limited to
the current litigation against the ECB and to future infringement litigation
against other parties in relation to the patent, which will most likely be
security printers and other service providers that are involved in the
production of currency that the Company believes uses the Company’s patent
without permission. Trebuchet does not have the right to commercially license
the Patent technology to Parties that are not subject
to the litigation. The Company also agreed that it would not commercially
license the patent without the consent of Trebuchet, which if so agreed, would
not result in royalty to Trebuchet. In its September 30, 2008 Form 10-Q,
the Company tried to summarize the numerous rights granted to Trebuchet in the
Agreement using plain english per below.

    Under the
terms of the Agreement, and in consideration for Trebuchet’s funding agreement,
the Company assigned and transferred a 49% interest of all of the Company’s
right, title and interest in the Patent to Trebuchet which allows Trebuchet to
have a separate and exclusive interest including a separate and distinct right
to exploit the Patent.

    In future
filings, the Company will revise its disclosure to state “Under the terms of the
Agreement, and in consideration for Trebuchet’s funding obligations, the Company
assigned and transferred a 49% interest of the Company’s rights, title and
interest in the Patent to Trebuchet which allows Trebuchet to have a separate
and distinct interest in and share of the Patent, along with the right to sue
and recover in litigation, settlement or otherwise to collect royalties or other
payments under or on account of the Patent.”

              3.

              Further,
      it appears that the Company entered into a multiple-element arrangement
      that included (a) the sale of the rights to future litigation settlements
      and (b) ownership rights in the Company’s Patent.  Accordingly,
      tell us how you considered the guidance in EITF 00-21 to allocate the
      $500,000 proceeds between these two elements on a relative fair value
      basis and tell us how you considered whether such amounts should be
      recorded as deferred revenue or recognized immediately upon
      sale.

    As
discussed above, the Company concluded that the most appropriate accounting
treatment of the transaction was as of a sale of assets.  Therefore,
the Company did not view its transaction with Trebuchet as a revenue generating
arrangement between a vendor and customer that would be covered under EITF
00-21.

    Thank you
for your assistance in this matter.  Please feel free to call me at
(585) 325-3610 if you have any questions about this matter.

                  Respectfully
      submitted,

                  DOCUMENT SECURITY
      SYSTEMS, INC.

                    By:

                  /s/  Patrick
      White

                    Patrick
      White

                    Chief
      Executive Officer

                /s/  Philip
      Jones

                  Philip
      Jones

                  Acting
      Chief Financial Officer

                  (Vice
      President of Finance)