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UDC and Samsung Kick the Can Down the Road
January 08, 2018

​The OLED Patent License Agreement between Samsung Display and Universal Display expired on December 31, 2017, as well as the material purchase agreement signed at the same time (August 22, 2011). Despite the worldly report earlier in December by Goldman Sachs that the Agreement would be signed before the end of the year, UDC issued a carefully worded press release stating, “The Registrant and SDC are engaged in on-going discussions regarding a formal long-term extension of these agreements.  The Registrant expects the parties to continue to conduct business during these discussions. The Registrant intends to provide an update once a resolution to these discussions is completed. No time frame has been established for the completion of these discussions.”
 
Moving forward, UDC and SDC must now work through not only the details of a new long-term contract that faces some of the same issues indicated above, but a number of new factors are now present, some of which we present here.  
 

• BLUE – A blue phosphorescent emitter appears closer to reality and the inclusion of a third primary phosphorescent material in the contract would need to be accounted for in the license fee arrangement. But Samsung is already testing Cynora’s TADF blue so they would be reluctant to commit to a UDC blue without first qualifying the material, which is likely to take a year from the time it is ready.
• GROWTH – When the updated contracts were signed, the OLED space was in its infancy, and both parties had to rely on estimates and forecasts that included considerable speculation as to the growth of the industry.  Today, the capacity of the fabs and the future fabs are well known, so there is no need to grossly estimate growth. There are reports that the Agreement might revert to one that is royalty based with the negotiations switching to how many basis points per color.
• MATERIAL USAGE – Samsung Display continues to grow its OLED business by adding capacity and consequently their material usage requirements continue to grow.  UDC must determine new ‘break points’ for cumulative material usage discounts based on current and planned future capacity expansion without pushing SDC to explore alternative materials.
• PATENT EXPIRATION – Some of UDC’s basic patents are expiring this year and while it will not change the overall IP protection that UDC garners, it has to be a point of negotiation for SDC.   Moreover the key L2MX patent will expire in 2019. The previous contract established minimum amounts of material to be purchased but if a supplier can levy a successful challenge to UDC’s expiring IP, Samsung will not want to be prohibited from using an alternative producer.  This would not extend to the ‘device’ patents that specify the use of phosphorescent materials in a device, which would still be covered under UDC’s portfolio, but could give Samsung some leeway in the negotiations.
• ALTERNATIVE MATERIALS – While some of this is covered in the IP section, most of the emitter materials produced by UDC are based on organic molecules attached to a heavy metal, primarily Iridium.  In most instances the UDC patents attempted to cover platinum and osmium metals but some of the courts have eliminated claims to metals other than Iridium.  However, no suppliers have yet to demonstrate viable material based on metals other than Iridium. 

 
In contrast to the note by Goldman Sachs, which claimed that either a new agreement or an extension would be signed by the end of the year, Samsung and UDC will continue to operate under the auspices of the previous agreement. However, when a new agreement is made, Samsung will be obliged to pay any gap between the previous and the new agreement. Neither company wants to terminate the contract permanently, which means that a new contract is inevitable.