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SEC Response Letter

October 11, 2005

Jason Niethamer

Securities and Exchange Commission

Division of Corporation Finance

100 F Street, N.E.

Washington, D.C. 20549

Mail Stop 4561

Re:
Dassault
Systèmes, S.A.

Form 20-F for Fiscal Year ended December 31, 2004

Filed June 28, 2005

File No. 000-28578

Dear Mr. Niethamer:

        This
letter sets forth the responses of Dassault Systèmes to the comments by the staff
of the Securities and Exchange Commission (the “Commission”) contained in the
letter dated September 16, 2005 (the “Comment Letter”). The responses set forth
below are numbered to correspond to the comments in the Comment Letter.

Revenue Recognition, page
F-8

     1.
          We note that product development revenue relates to the development of
          additional functionalities of standard products requested by clients. Tell us
          more about the nature of the services provided. Specifically indicate whether
          the services involve significant modification or customization. In addition,
          tell us whether the product development services are essential to the
          functionality of your products. Tell us how you considered paragraphs 63 through
          71 of SOP 97-2 in your accounting for contracts that involve product development
          services.

        Product
development services are not sold in combination with or as part of a licensing agreement.
Accordingly, paragraphs 63 through 71 of SOP 97-2 are not applicable to our development
arrangements.

        Product
development revenue represents arrangements with customers to expedite the development of
new products or additional functionalities to our existing products. The only customer
deliverable is the right to use the new functionalities or products for evaluation
purposes during the development period (to the extent the functionalities or products are
operable). The customer also has the ability to provide input into the development
process. Once developed, the new functionalities are included within our standard product
offerings. Upon release, should the customer wish to use the product incorporating the
development work, it will have to license it from our authorized distributors under their normal
terms and conditions.

        Under
these arrangements, the customer is not entitled to (i) royalties on our future sales of
the functionalities or products, (ii) discounts on the purchase of the functionalities or
products developed under the arrangement or (iii) a non-exclusive license or sublicense at
no additional charge.

        In
accordance with paragraph 73 of SOP 97-2, as the
technological feasibility of the functionalities or products has not been established
prior to entering into these arrangements, Statement of Financial Accounting Standards
(“SFAS”) 68, “Research and Development Arrangements” applies. These arrangements do not contain any repayment
provisions and are considered obligations to perform contractual services. Accordingly, we
recognize revenue as the services are performed.

        For
the years ended December 31, 2004, 2003 and 2002, revenues under such arrangements were
€15.6 million, €6.5 million and €2.7 million, respectively.

     2.
          Your revenue recognition policy disclosure indicates that under your
          marketing and distribution agreement with IBM, license royalties are recognized
          upfront while Postcontract Customer Support (“PCS”) royalties are
          recognized over the support period. Tell us how you allocate the fee for
          multiple element arrangements that include both license and PCS. Cite the
          authoritative literature relied upon in your accounting.

        For
arrangements other than our marketing and distribution agreement with IBM, which is
discussed in our response to question 3 below, we recognize revenue associated with
multiple element arrangements in accordance with the provisions of AICPA Statement of
Position (SOP) 97-2, “Software Revenue Recognition,” paragraphs 10-12, as
amended by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions.” Specifically, revenue from multiple-element
arrangements, which are typically comprised of new software licenses and maintenance
agreements, is allocated to each element in the arrangement primarily using the residual
method. This allocation is based upon the fair value of the undelivered elements
(generally maintenance), which is specific to us (vendor-specific objective evidence of
fair value or “VSOE”). Discounts, if any, are applied to the delivered elements
(generally software licenses) under the residual method. For maintenance, VSOE is based
upon either the renewal rate specified in each contract or the price charged when sold
separately. If VSOE of one or more undelivered elements cannot be established, the entire
amount of revenue from the arrangement is deferred and recognized when delivery of those
elements occurs (i.e. ratably over the maintenance period) or when VSOE can be
established.

     3.
          We note that you provide maintenance to IBM, provide training to IBM
          employees, participate in marketing arrangements with IBM, and are involved in
          other product development initiatives with IBM. Explain to us how you account
          for and classify fees earned or amounts incurred for these arrangements with
          IBM. Cite the authoritative literature relied upon in your accounting.

        Background
Information: We entered into a marketing and distribution agreement with IBM (the
“Agreement”), whereby IBM obtains the right to resell our software products.

        The
Agreement requires us to:

•

Provide Level 2 maintenance support, which is provided directly to IBM
only. Level 1 maintenance support is provided by IBM to all of its end-users. We
do not interact or provide support directly to IBM end-users.

•

Provide an undefined amount of training to IBM employees throughout the term of
the Agreement. This training is typically provided at or near the release date
of our new product offerings.

•

Contribute to IBM's marketing activities, which relate to our products in a
percentage of Agreement revenue agreed upon annually with IBM. We must also contribute to
certain pre-sale activities and have representatives participate in worldwide
marketing meetings.

•

Provide input into IBM's product development initiatives, as requested.
Likewise, IBM provides input into our product development
initiatives.

        IBM
sells the software to end user customers and charges an initial upfront fee for the
software license (“PLC”) and ongoing renewal fees paid on an annual basis
(“ALC”). The ALC fee is generally about 15% of the PLC. When IBM sells the
software to the end user, IBM is the principal in the transaction. We are in no way
obligated under the arrangement with the end customer.

        The
Agreement does not provide for a fixed fee. As compensation for the above deliverables, we
are generally entitled to 50% of the revenue IBM receives for the sublicense (which
includes PCS) provided to the end-users. The Agreement states that the royalties owed to
us “accrue” as revenue from sublicenses is recognized and reported by IBM.

        Revenue
Recognition: We recognize royalty revenue when IBM becomes obligated to pay under the
terms of the Agreement (e.g. when recognized and reported by IBM). This method of
recognition is a sell-through method. That is, we do not recognize any revenue on the
products or services that are delivered to IBM until IBM delivers the products and
services to end-users. License revenue is recognized when IBM licenses the software to
end-users and recognizes the revenue and reports the sales to us; PCS revenue is
recognized as IBM provides PCS to the end-users and reports the royalties to us (i.e., as
they are earned over the PCS period). None of the royalties collected are prepayments for
future products or services; subsequent products or services delivered are covered by
subsequent royalty payments. It is possible that when the agreement is terminated, some
future service may still be required. However, the agreement also requires IBM to continue
to pay royalties for any additional sales of product or PCS. Therefore, while some product
or service may be provided, IBM would be unable to benefit without being obligated to make
additional royalty payments.

        From
our perspective, the earnings process is complete on the products and services we are
obligated to provide before revenue is recognized.

        Under
the Agreement, the arrangement fee is not fixed or determinable until the Agreement
terminates because the fee is variable and is contingent on IBM’s transactions with
end-users. Paragraph 26 of AICPA Statement of Position (“SOP”) 97-2,
“Software Revenue Recognition,” states, in part:

        “A
software licensing fee is not fixed or determinable if the amount is based on the number
of units distributed or copied, or the expected number of users of the product. Revenue
recognition for variable-pricing arrangements is discussed in paragraphs 43-47 of this
SOP.”

        Paragraphs
43-47 are not on point to our arrangement with IBM because they address fixed fee
arrangements that provide customers with the right to reproduce or obtain copies at a
specified price per copy of two or more software products up to the total amount of the
fixed fee. Those paragraphs also do not address variable pricing in an arrangement that
includes PCS.

        Paragraph
67 of SOP 97-2 addresses circumstances in which products and services are provided and
vendor specific objective evidence (“VSOE”) of fair value of the elements does
not exist. Paragraph 67 states that the entire arrangement fee (again, assuming that the
entire arrangement fee is fixed) should be recognized as the services are performed. It
further states that if “no pattern of performance is discernible, the entire
arrangement fee should be recognized on a straight-line basis over the period during which
the services are performed.” In our case the arrangement fee is not fixed, but
revenue is being recognized over the term of the arrangement based on the performance of
the reseller, which occurs after the performance by the vendor.

        We
believe that the terms of the Agreement are most analogous to Scenario No. 3 of AICPA
Technical Practice Aid (“TPA”) 5100.76, “Fair Value in Multiple-Element
Arrangements That Include Contingent Usage-Based Fees and Software Revenue
Recognition.” Scenario No. 3 describes an arrangement that provides for a perpetual
license solely in exchange for contingent usage-based fees determined monthly or quarterly
and due shortly thereafter. PCS is provided at no additional stated charge. The TPA states
that:

        “The
usage-based fee represents payment for both the perpetual license right and PCS. However,
that fee becomes fixed or determinable only at the time actual usage occurs. Therefore,
revenue should be recognized at the time a reliable estimate can be made of the actual
usage that has occurred, provided collectibility is probable.”

        Note
that although the vendor in scenario 3 of the TPA would still be obligated to provide PCS,
no deferral of revenue is required. In our case, we rely on IBM’s report of revenue
as a basis for determining when royalties have been earned and do not defer revenue for
future services. Similar to usage-based fees, IBM will compensate us for past products and
services provided when it sells those products and services to its end user customers.

        Except
for SOP 97-2, we do not believe there is accounting literature within accounting
principles generally accepted in the United States that is directly on point with the
Agreement regarding the recognition of royalties. However, paragraph 30 of International Accounting
Standard (“IAS”) No. 18 states in part that “royalties should be recognized
on an accrual basis in accordance with the substance of the relevant agreement.”

        Paragraph
33 of IAS No. 18 states: “Royalties accrue in accordance with the terms of the
relevant agreement and are usually recognized on that basis unless, having regard to the
substance of the agreement, it is more appropriate to recognize revenue on some other
systematic and rational basis.”

        We
believe that the above literature supports recognition of revenues under a royalty or
sell-through basis.

        Expense
Recognition: As noted by the Staff, we provide certain services and participate in certain activities under the terms of the
Agreement, as discussed below. All costs associated with such services and activities are expensed as incurred.

•

Maintenance costs. Under the Agreement, IBM provides Level 1 maintenance to the
end-users. Consequently, the majority of the costs relating to maintenance are
incurred by IBM. In addition, the majority of bugs are corrected through
functionality enhancements that are included in new releases or service packs
(as opposed to delivering bug fixes to customers). New releases and service
packs are sold to new and existing customers and are made available to existing
customers under maintenance.

•

Training costs associated with IBM employees. As noted above, this training is
typically provided at or near the release date of our new product
offerings.

•

Marketing activities. We are committed to participate in marketing campaigns
with IBM for the promotion of our products for a percentage of Agreement revenue
agreed upon annually with IBM. The costs relating to these activities are paid
directly to third-party providers and represent our direct marketing costs (as
opposed to amounts that are withheld in a "coop-type" advertising program) for
which we receive an identifiable benefit (advertising) and for which fair value
is known (amount directly expended by us).

•

Product development activities. Product development initiatives per the
Agreement involve two activities: (1) receiving feedback from IBM on our
products that are covered by the Agreement in terms of quality, performance and
functionality expected by customers, as well as feedback which may assist us in
keeping pace with the evolution of our market; and (2) providing feedback to IBM
on their software and hardware to help optimize the performance of our products
when used in combination with IBM products. We have no commitment to IBM to
develop specific functionalities, nor does IBM have any commitment to enhance
their products.

Note – R. Scope of
consolidation, Page F-40

     4.
          We note your less than wholly-owned consolidated subsidiaries listed within
          your filing. Provide us with an analysis of the amount of minority interest in
          these consolidated subsidiaries for each of the periods presented. Furthermore,
          tell us where the minority interests are presented within your consolidated
          financial statements.

        We
record the minority interest in our consolidated statements of income within the caption
“Financial revenue and other, net” and in our consolidated balance sheets within
the caption “Deferred tax liabilities and other”. Such amounts have not been
presented separately as they are considered immaterial for separate disclosure as shown in
the table below (in thousands):

     2004

     2003

     2002

     Minority interest income
     €
     178

     €
     1,133

     €
     497

     Operating income
     €
     229,791

     €
     212,739

     €
     203,032

     Net income
     €
     156,418

     €
     135,419

     €
     126,415

     Minority interest
     €
     4,039

     €
     3,113

     Total Liabilities
     €
     339,902

     €
     306,812

     Total Shareholders' Equity
     €
     759,249

     €
     657,678

*    *    *

        In
response to the Commission’s comments, we hereby