Yesterday Oppenheimer & Co. Inc. published a rapid response to our research report on Universal Display Corporation (“UDC”; NASDAQ: OLED). Below we explain why we believe that the Oppenheimer report misleads investors.
Oppenheimer analyst Andrew Uerkwitz offered no evidence of having read the 57-page investigative report and 9-page legal opinion that were the subject of our report. These fact-based documents are pointedly directed at UDC’s central value claim that it “owns” phosphorescent OLED. They were produced by a highly specialized expert with unique experience and knowledge in this subject matter. Mr. Uerkwitz claimed that he understands the facts and reasoning disclosed by the expert, and then boldly claimed they are “in the company’s 10-Q.”
The Oppenheimer report appears even more fundamentally misleading than UDC’s own disclosures about its past loss of patent claims in European Patent No. 1449238 (“EP-238”) or the difficulties it has faced in defending its key patent claims at the appeal level at the European Patent Office’s (“EPO”), where they face final judgment. This patent represents UDC’s central OLED claim.
A reading of Mr. Uerkwitz’s report shows a lack of basic knowledge necessary to understand the seriousness of UDC’s circumstances in a final proceeding that presents a material “sudden death” risk for UDC shareholders, which UDC has not addressed.
Our report provided and discussed the Lowe Hauptman investigation and legal opinion, both of which were formally filed at the EPO’s Boards of Appeal. No other analyst or publication had previously discussed the Lowe Hauptman filing or the “sudden death” risk of the proceedings. The Oppenheimer analyst chose to dismiss all of this material in a half-page of bullet points.
We address certain of Oppenheimer’s points below, each in turn, with reference to actual supporting documents, to show why the quoted statements are misleading:
- “what we read in the article is no different from what we’ve read in the company’s 10-Q”
It’s difficult to understand how Mr. Uerkwitz justifies this statement. We see no such disclosure in UDC’s documents or speech. Oppenheimer not only fails to address the scientific and legal findings in the Lowe Hauptman filing, but this statement also covers up the distortions evident in UDC’s description of the EP-238 opposition proceedings.
UDC does not disclose that it lost a significant portion of EP-238 claims in the first round of opposition proceedings before the EPO’s Opposition Division. Oppenheimer does not even appear to understand that UDC has already lost some of its EP-238 claims. This is discussed in more detail below.
UDC’s SEC filings also do not disclose the date of the EPO Board of Appeal hearing, the specific claims that are at issue, the significance of those claims, or the finality of the Board’s decision.
- “The one piece of evidence we believe is strongest is the EPO’s announcement regarding maintaining of the patents in an earlier decision in January.”
This appears to refer the decision of the EPO’s Opposition Division, issued in January 2012, in the EP-238 case, but it shows a fundamental misunderstanding of the contents of that decision. The January 2012 decision does not “maintain[…] the patents” – it invalidates a significant portion of EP-238’s claims as granted. The Lowe Hauptman states that 16 of the 30 original claims in EP-238 were invalidated by the Opposition Division (see pages 47 and 53). Lowe Hauptman filing appendices B – G discuss the Opposition Division proceeding, the reasons for the January 2012 decision, including invalidation, and issues that the Opposition Division failed to consider.
In its SEC filings, UDC does not disclose the invalidation of certain EP-238 claims in the January 2012 decision. Instead, UDC states only, “the EPO panel announced its decision to maintain the patent with claims directed to OLEDs comprising phosphorescent organometallic iridium compounds.” See UDC 10-Q for the quarter ended June 30th. Not only does this neglect to mention the claims that were actually invalidated, it fails to state that the EPO invalidated any claims at all.
We have prepared this response because we believe that the bull case for UDC rests upon certain misunderstandings or distortions that are allowed or perpetuated by UDC management and UDC’s disclosure practices. Indeed, we believe that the problems with UDC’s disclosures are far larger than the misleading description of EP-238 proceedings discussed above.