Wednesday, March 28, 2007

DMC's Conflicted Conflicts

Document Security Systems (AMEX:DMC) has taken a few punches in the head on the intellectual property front. The Rochester New York based company develops anti-counterfeiting products. Specifically the company's technologies protect documents and printed products including currency, ID cards, passports and gift certificates from counterfeiters and identity thieves. Should be a big business.

But they have just lost a patent validity lawsuit in the UK and the International Bureau of World International Property Organization’s (WIPO) March 13, 2007 denied DMC's European patent. (DMC has been silent to date about the WIPO ruling).

The company was quick to point out that each European country would decide for itself. On March 27 we hear that the German Federal Patent Court approved the validity. It is believed that several other jurisdictions are grinding their way to decisions.

Asensio doesn’t like these guy’s and ties the current actions in with a 1995 patent infringement case between DMC and US Federal Treasury which DMC lost. In an recently emailed press release Asensio in relation to the UK decision points out

“This adverse ruling comes almost one year after questions concerning the legitimacy of DMC's claims and irregular stock transactions made their first public appearance. The decision's detailed technical fact discovery and findings that add credence to the belief held by some that DMC's claims were never brought in good faith but were formed to create a questionable, and possibly illegal, penny-stock promotion scheme.”

The stock has yo yo’ed for the past twelve months with a 52 week range between $7.50 and $13.70. So if we check the litmus test of insider trading we will find that insider Mr. Thomas Wicker has been selling stock exclusively for the past two years. This individual holds the title of Chief Technology Officer, Vice President and Secretary.

Strangely enough Mr. Peter Ettinger (the current President) has been making some rather large acquisitions of the stock. Signals from management are schizophrenic.

Not exactly your widows and orphans investment grade stock. DMC has not been able to generate revenues in excess of $5 million a year in the past few years. If their technology is so hot someone knowledgeable in the field would have made a takeover bid by now.

Long term prospects appear dismal.