Document Security Systems Sues Coupons.com for Three Times Its Market Capitalization

Submitted by Frank Rollins as part of our contributors program.

Document Security Systems (NYSE: DSS) is suing Coupons.com for over $240 million in damages, or approximately three times its current market capitalization of $80 million. There are no indications as to whether the company will receive any of this money. On Friday, however, Document Security Systems announced that its legal hearing was moved up approximately two months, most likely in relation to Coupons.com’s likely Initial Public Offering (IPO). This curious development was picked up over the weekend by SeekingAlpha, Benzinga, TheFlyOnTheWall, and republications of the primary press release. Although Document Security Systems was the subject of some skepticism in 2007 and 2008, this article provides some information regarding the developments of the company in the five subsequent years and, especially, this past Friday.

At the end of 2011, Goldman Sachs (NYSE: GS) held a private Internet company conference at which it revealed 30 companies that it expects will reveal an IPO. Amongst the list was coupon-industry leader Coupons.com, a company that has remained private for the past 13 years and has overtaken the once popular newspaper-coupon industry. Although Document Security Systems’ IPO is not guaranteed, CEO Steven Boal has stated, “that remains a viable option for us.” While an IPO may come by the end of 2012, Coupons.com also faces a lawsuit from New York-based Document Securities Systems that alleges Coupons.com breached a contract and used patented technology for six years without permission.

Recently, couponing has peaked in interest higher than ever before. TLC first premiered “Extreme Couponing” in 2011, depicting coupon-obsessed consumers purchasing hundreds of dollars worth of goods in bulk for a skimpy price tag. The show reeled in plenty of viewers, many of which found a hard time believing some of the drastic savings these consumers were getting. Many viewers voiced concerns that participating stores would allow coupon misuse or fraudulent coupons for the publicity of the show. It turns out, they were right.

Fraudulent coupons recently made headlines in Phoenix, Arizona, where authorities took 3 women into custody after collecting evidence indicating that the women were distributing $25 million worth of coupons online. Around the nation, it seems fraudulent coupon use is on the rise, leading to millions of dollars lost by American manufacturers.

Combating the rise in fake coupon use, stores nationwide as well as the coupon manufacturers themselves are vamping up security efforts. Document Securities Systems is “a leader in anti-counterfeit, authentication, and mass–serialization technologies, provides turnkey security solutions to corporations, governments, and financial institutions around the world.” Document Securities Systems’ proprietary digital copy protection technology was originally offered to Coupons.com to review under a non-disclosure agreement. Document Securities Systems CEO Patrick White claims, “research indicates that Coupons.com has printed this technology on billions of internet generated coupons since 2006.”

Coupons.com has not publicly released any comment regarding the lawsuit. After originally planning on taking the suit to court on October 9th of this year, Document Securities Systems announced today that it will be moving up the hearing to August 16th. Speculation as to how Coupons.com will respond is beginning to heat up as rumors of their expected IPO later this year roughly coincide with the lawsuit. It may be in both Coupons.com and Goldman Sachs’ best interest to settle quickly (and perhaps outside of the court of law) in order to avoid controversy amidst their IPO. If an agreement cannot be reached, it is possible Coupons.com will postpone plans for an IPO until the negative publicity passes.

The lawsuit and potential upcoming IPO could cause drastic changes to the stock prices of both Document Securities Systems and Coupons.com. With a market cap of $80.66 million as of the market close on Friday, Document Securities Systems may experience an influx of trading activity. Coupons.com, on the other hand, could face some hardships with the lawsuit ahead. If the IPO is timed right and publicity is managed well, both companies could emerge from negotiations in good shape.

As Document Securities Systems and Coupons.com go head-to-head, the rise in coupon use continues to jump alongisde counterfeiting. Reports of counterfeit coupons are frequent, as well as reports of coupon misuse, as caricatured in the television show “Extreme Couponing.” One store based in North Carolina who participated in Extreme Couponing even admitted to agreeing to misrepresent the use of coupons to the show’s advantage. The Coupon Information Corporation (CIC) is an organization that “encourages and supports federal, state, and local law enforcement efforts to identify, investigate, and prosecute coupon misredemption.” Similar to the efforts of Document Securities Systems in securing coupons so that they cannot be falsely duplicated, the CIC constantly seeks out fraudulent coupons to post to its coupon fraud list.

Investors in Document Security Systems and Coupons.com anxiously await the outcome of this $240 million lawsuit regarding the security patent. Although Document Security Systems is suing for a large amount of money, actual damages awarded (if any) could vary widely from alleged amounts.

Disclaimer

I do not recommend that you buy or sell any security. I have not accepted compensation to write about Coupons.com, Goldman Sachs (NYSE: GS) or Document Security Systems (AMEX: DSS). I am a freelance writer, and through writing free articles, I hope to build a repertoire of work for future work applications. I have no plans to initiate any position in Coupons.com, Goldman Sachs, or Document Security Systems within the next two weeks.