Document Security Systems Inc. (DSS), the patent licensing company run by CEO Jeff Ronaldi, said it needs to increase sales of its digital products and printed products and decrease expenses related to its patent monetization business to conserve cash and remain in business after posting a first quarter net loss of $1.65 million.

The Rochester, N.Y.-based company’s net loss of 4 cents a share compared with a net loss of $3.07 million, or 7 cents a share, a year ago.

Revenue fell to $3.4 million from $3.6 million. Printed products revenue fell to $3.02 million from $3.16 million. Licensing revenue fell to $409,535 from $464,231.

Costs and expenses fell 24% $5 million from $6.6 million from the first quarter of 2014. The decrease reflected cost decreases in nearly every expense category except for professional fees, which increased 33% due to increased activity in some of its IP litigation matters.

"We continue to aggressively press forward with our remaining patent litigation matters, which involve several very large corporate defendants,” Ronaldi said in a statement. “We continue to believe that the intellectual property underlying these patent infringement cases is strong, despite recent set-backs we have experienced with certain cases.”

Ronaldi said in addition DSS was able to achieve strong growth in sales for many of its higher margin printed products such as secure coupons and ID cards with technology that has driven strong performance in core production business. 

In addition, he said the company company is “deep in the sales cycle with prospective customers of AuthentiGuard™ that we believe will come to fruition during this year."

As of March 31, DSS had cash and cash equivalents of $1.59 million, down from $2.34 million at year end. It also had $337,000 in restricted cash and up to $800,000 available under a revolving credit line at its packaging subsidiary.

“Our ability to fund our capital requirements out of our available cash and cash generated from our operations in the future will depend on many factors, but largely on our ability to (i) increase sales of the Company’s digital products; (ii) decrease legal and professional expenses for the Company’s intellectual property monetization business; and (iii) continue to generate operating profits from the Company’s packaging and plastic printing operations.”

DSS officials couldn’t be reached for additional comment.

The company raised $1.7 million from a private placement of common stock in December.

“If we are not successful in generating needed funds from operations or in equity or debt capital raising transactions, we may need to reduce our costs which measures could include selling or consolidating certain operations or assets, and delaying, canceling or scaling back product development and marketing programs. “

The company said if it is not successful in generating needed funds from operations or from capital raising transactions, substantial doubt may be raised about its status as a going concern.

DSS also said its DSS Technology Management unit reached confidential settlement agreements with several companies it had sued for patent infringement including NEC Corp. of America and Lenovo (United States) Inc.

The settlement with NEC on April 28 involves several different suits, one filed March 10, 2014 in the United States District Court for the Eastern District of Texas against Taiwan Semiconductor Manufacturing Company, TSMC North America, TSMC Development, Inc., Samsung Electronics Co., Ltd., Samsung Electronics America, Inc., Samsung Telecommunications America L.L.C., Samsung Semiconductor, Inc., Samsung Austin Semiconductor LLC, and NEC, for patent infringement involving certain of its semiconductor patents.

DSSTM is seeking a judgment for infringement, injunctive relief, and money damages from each of the named defendants. In June 2014, TSMC filed a petition for inter partes review of the patents at issue with the Patent Trial and Appeals Board. DSSTM filed its preliminary response to the petition in October, 2014. Samsung also filed an IPR relating to the same patents in September 2014. DSSTM filed its preliminary response to that petition in December, 2014. On December 31, 2014, the PTAB instituted review of several of the patent claims at issue in the case. Samsung filed a motion with PTAB to join TSMC’s IPR proceeding. The request was granted by the PTAB.

On March 3, 2015, a Markman hearing was held in the Eastern District of Texas. Based on the District Court’s claim construction order issued on April 9, 2015, DSS Technology Management and TSMC entered in to a joint stipulation and proposed final judgment of non-infringement dated May 4. The stipulations gave DSSTM the right to appeal the court’s claim construction decision to the Federal Circuit and preserved the status quo in the event an appeal results in remand for further proceedings in the District Court.

The settlement with NEC also involves another infringement action brought in February in the same court against Intel Corp., Dell Inc., GameStop Corp., Conn’s Inc., Conn Appliances Inc., NEC, Wal-Mart Stores Inc., Wal-Mart Stores Texas LLC, and AT&T Inc. The complaint alleges patent infringement and seeks judgment for infringement of two of DSSTM’s patents, injunctive relief and money damages. The case is currently in the initial pleadings stage.
 
DSSTM on May 8 tentatively agreed to the terms of a confidential non-suit agreement with Lenovo. It’s not clear how this will affect the infringement action DSSTM filed May 30, 2014, against Lenovo in the United States District Court for the Eastern District of Texas, for infringement related to systems and methods of using low power wireless peripheral devices. DSS Technology Management is seeking judgment for infringement and money damages from Lenovo in connection with the case. On April 27, 2015, Lenovo moved for summary judgment in the District Court on the grounds that the patent at issue is invalid for indefiniteness. A decision on the motion is currently pending.

To reach the reporter responsible for this story contact Dan Lonkevich at 707 318-7899 or at dan@thepatentinvestor.com