EPO Filing Is Devastating For Universal Display Corp.

Sep.12.13 | About: Universal Display (OLED)

A recent filing at the European Patent Office ("EPO") shows that the most important claims of Universal Display Corporation's (NASDAQ:OLED) "key PHOLED technology patents" should be entirely revoked. This could happen quickly and with finality, after an EPO Board of Appeal hearing scheduled for this November. Equally important, the filing sheds light on UDC's constantly changing stories about its contractual relationship with Samsung.

European Patent No. 1449238 ("EP-238") is described by UDC as one of its key patents and has been the subject of opposition proceedings at the EPO since 2007. Merck, Sumitomo Chemical, and BASF have all been seeking to have EP-238 revoked in its entirety. In the first round of EP-238 opposition proceedings before the EPO's Opposition Division, several of the patent's original claims were invalidated.

Each of Merck, Sumitomo Chemical, and BASF filed an appeal to revoke EP-238 in its entirety. The EPO Boards of Appeal will issue a ruling following its November hearing. Any invalidation or revocation of EP-238's surviving claims will have final effect throughout all of Europe, and could have a material impact on UDC's OLED materials sales and licensing revenue, in our view.

On August 16th, Lowe Hauptman & Ham LLP, a leading patent and intellectual property law firm, submitted a formal Third Party Observations filing (the "Lowe Hauptman filing") to the EPO in response to the Board's Summons (pdf), which contains an annex with discussion from the Board. According to EPO procedures, the Board of Appeal has to consider the Lowe Hauptman filing, and we believe the filing makes it clear that complete revocation of EP-238 is required as a matter of law and fact.

The authors of the Lowe Hauptman filing provided the EPO with a nine-page summary, which can be read here (pdf). The full 57-page Lowe Hauptman filing can be found here (pdf).

EP-238 contains UDC's only economically material patent claims, in our view, especially the claims directed to emissive material in OLEDs - specifically, phosphorescent organometallic iridium compounds. If the EPO were to revoke EP-238's surviving claims, we believe it would materially impair UDC's ability to generate future licensing revenue, even from Samsung, UDC's only material customer.

The EPO Board of Appeal's decision will be final, subject to an enlarged Board proceeding, and there appears to be an overwhelming amount of factual and legal evidence making it a virtual certainty that EP-238 will revoked in its entirety, according to the Lowe Hauptman filing and our own expert consultations. The filing by itself is devastating to UDC. It shows how insignificant, mundane experimentation was originally used to secure extremely broad patent claims in EP-238 and corresponding key patents in other jurisdictions. An in-depth, expert review of the experimentation shows that it was frivolous rather than a fundamental breakthrough.

The Lowe Hauptman filing systematically takes apart EP-238's core claims, examines the experiments conducted by UDC's scientists that form the basis of those claims, and addresses the merits of the supposed invention. The Lowe Hauptman filing finds that UDC scientists did not invent any single component of the claimed invention. Rather, UDC scientists made routine optimizations using existing, well-known materials and architectures. The filing finds that under existing law, the Board of Appeal must revoke EP-238 in its entirety for lack of novelty and inventive step.

Disclosure: I am short OLED. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.