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Universal Display's Latest Promotion – Management’s Past Failed Venture

|Includes: Universal Display Corporation (OLED)

The CEO and CFO of Universal Display Corporation ("UDC"; NASDAQ: OLED) have made material misrepresentations concerning their purported past experience at InterDigital, Inc. (NASDAQ: IDCC), based on our review of filings with the Securities & Exchange Commission ("SEC").** What public records really show is that UDC executives were involved with an unsuccessful wireless telephone venture that was in operation for two decades without turning a profit. This business, International Mobile Machines Corporation ("IMM"), was on the verge of bankruptcy by the time of the departure of the individuals who were later involved in UDC, according to IMM's SEC filings.

Recently, at the Oppenheimer Technology Conference on August 14th, UDC's CFO, Sidney Rosenblatt, stated, "The founder of Universal Display [Sherwin Seligsohn] founded a public company called Interdigital Communications, IDCC, which is a patent licensing company in the cellular business." Rosenblatt also stated that he "was actually CFO of that company [IDCC], and the CEO of Universal [Display] was head of licensing." Rosenblatt then stated, "So, we have had about 35 years experience together working on filing and obtaining patents and running licensing businesses." However, examination of IDCC's filings with the SEC shows that Rosenblatt's statements are fundamentally inaccurate, based on our review.

UDC's CEO, Steve Abramson, is on record making similar remarks - as far back as December 1998 in an interview with the Wall Street Transcript - about the UDC executives' purported involvement IDCC's licensing business. Abramson even claimed that IDCC had "generated over $200 million in licensing fees" from technology developed during his time at the company. Again, we believe that public SEC filings show these claims to be fundamentally inaccurate.

We believe that this is an attempt to take credit for the success that IDCC has had in its licensing business and an attempt to establish credibility in creating successful patent-licensing ventures. What SEC records really show is that UDC executives were involved with an unsuccessful attempt to develop and market a wireless telephone system, the "UltraPhone," at IMM.

IMM's historical SEC filings disclose the following facts. Sherwin Seligsohn, UDC's founder, reportedly started IMM in 1972 and served as chairman of IMM's board of directors until his resignation in 1991. Steve Abramson also left IMM in 1991, having worked there since 1982. Sid Rosenblatt worked at IMM from 1982 until 1990. In nearly two decades of operation under Seligsohn, IMM failed to achieve significant revenues and only generated operating losses. Under Seligsohn, IMM did not have a strategic focus on, or obtain, patent licensing fees; sales of the UltraPhone were IMM's primary source of revenue.

It was only after the departure of Seligsohn, Abramson, and Rosenblatt that IMM changed its business strategy to focus on obtaining and licensing patents in the wake of the failing UltraPhone business, according to SEC filings.

In 1992, IMM changed its name to InterDigital, and acquired SCS Mobilecom, Inc. in order to obtain patents and in-process research and development. At the same time, sales of the UltraPhone developed under Seligsohn "began to experience a significant decline… during 1992," according to the company's 1995 10-K. IDCC stated in the same 10-K, "Beginning in 1992, competition for sales of wireless telephone systems intensified… [IDCC] implemented a strategy during 1993 of negotiation and litigation with certain entities which it believed were infringing the Company's patents." IDCC only began to recognize licensing revenue in 1994.

Looking at IDCC as it stands today, it would ridiculous to suggest that IDCC's current success is in any way attributable to the pre-1991 activities of IMM. According to IDCC's 2012 10-K, IDCC employs 172 engineers engaging in on-going R&D efforts; IDCC has over 1,500 U.S. patents, 190 of which were issued in 2012 alone. By contrast, in 1989, IMM disclosed only 21 patents relating to the UltraPhone that would expire between 1991 and 2006.

We believe that UDC management's misrepresentations concerning the success of the IMM venture are indicative of a broader trend of baseless promotion and a lack of straightforward disclosure, exemplified with management's treatment of the UDC contract with Samsung and lack of disclosure concerning challenges to UDC's key patents.

** Documents reviewed include the IMM IPO prospectus on Form 424 dated November 12, 1981, the IMM Form 10-Ks for 1989, 1990, and 1991, and the IDCC Form 10-Ks for 1992 - 2012.

Disclosure: I am short OLED.