FULL PRODUCT VERSION :
Java Plug-in 11.40.2.26
Using JRE version 1.8.0_40-b26 Java HotSpot(TM) Client VM

ADDITIONAL OS VERSION INFORMATION :
Microsoft Windows [Version 6.1.7601]

EXTRA RELEVANT SYSTEM CONFIGURATION :
Using Internet Explorer 11
Version: 11.0.9600.17691

A DESCRIPTION OF THE PROBLEM :
After signing on using the initial applet on page http://demo.sdsusa.com:8060/sdsvip, the second page containing two applets fails to load the two applets.

As a side note, I began the discussion of this issue as a question on this page: https://community.oracle.com/thread/3681917.

REGRESSION. Last worked in version 8u31

ADDITIONAL REGRESSION INFORMATION:
We were not getting the CharacterEncoder.encode internal error when using java version 1.8.0_31.

STEPS TO FOLLOW TO REPRODUCE THE PROBLEM :
1) Visit page: http://demo.sdsusa.com:8060/sdsvip
2) The Sign On applet should load fine.
3) Display the java plug-in coffee cup console and type "5" for full tracing; you should see this message appear int he console: "Trace level set to 5: all ... completed."
4) Type User ID: sds
5) Type Password: oracle
6) Click on the Sign On button.
7) The Sign On page is replaced by the Administrator Home Page.
8) At the top of the page, there are two red boxes with the title: "Error. Click for details".
9) Clicking either of the "Click for details" messages displays an Application Error pop-up dialog with the "CharacterEncoder.encode internal error" message displayed.
10) The java console shows a java.lang.Error: CharacterEncoder.encode internal error among other information.
11) See the Error Message(s)/ Crash Logs data for full error message and log.
12) Interestingly, if you close your browser while the error messages are displayed and then re-launch and visit the page again within a minute or so, you may not see the error; that is, you may bypass the sign on page and see the menu and logo/clock applet. The browser session is restored (It seems that IE restarts with the same session [based on some browser settings, I guess]). I mention this to prove that the two applets are valid and functioning. If you do get back in successfully, click Sign-Off on the main menu to restart your testing.

EXPECTED VERSUS ACTUAL BEHAVIOR :
EXPECTED -
After signing on, the page is displayed with two applets displayed. The first applet is a menu and the second applet is a logo with the time of day displayed (updated each second).
ACTUAL -
After signing on, the page is displayed with two error messages instead of the two applets as expected.

ERROR MESSAGES/STACK TRACES THAT OCCUR :
Java Plug-in 11.40.2.26
Using JRE version 1.8.0_40-b26 Java HotSpot(TM) Client VM
User home directory = C:\Users\bjal1
----------------------------------------------------
c: clear console window
f: finalize objects on finalization queue
g: garbage collect
h: display this help message
l: dump classloader list
m: print memory usage
o: trigger logging
q: hide console
r: reload policy configuration
s: dump system and deployment properties
t: dump thread list
v: dump thread stack
x: clear classloader cache
0-5: set trace level to <n>
----------------------------------------------------
Trace level set to 5: all ... completed.network: Connecting http://demo.sdsusa.com:8060/sdsvip/servlets/SDSM0100 with proxy=DIRECT
network: Connecting http://demo.sdsusa.com:8060/ with proxy=DIRECT
network: Connecting http://demo.sdsusa.com:8060/sdsvip/servlets/SDSM0100 with cookie "JSESSIONID=D4B7C4454253E8346816D93D3F16D8CC; __utma=244664391.1894222523.1387464673.1405523540.1412630209.15; __utmz=244664391.1387814249.6.2.utmcsr=vipdemo.sdsusa.com:8080|utmccn=(referral)|utmcmd=referral|utmcct=/test.htm; com.sdsusa.vip.SDSM0100=D4B7C4454253E8346816D93D3F16D8CC"
network: Connecting http://demo.sdsusa.com:8060/sdsvip/servlets/CommonServlet?c=1426602130134&Action=UPDATEUSEROPTIONS&removeAll=N&eop=eop with proxy=DIRECT
network: Connecting http://demo.sdsusa.com:8060/sdsvip/servlets/CommonServlet?c=1426602130134&Action=UPDATEUSEROPTIONS&removeAll=N&eop=eop with cookie "JSESSIONID=D4B7C4454253E8346816D93D3F16D8CC; __utma=244664391.1894222523.1387464673.1405523540.1412630209.15; __utmz=244664391.1387814249.6.2.utmcsr=vipdemo.sdsusa.com:8080|utmccn=(referral)|utmcmd=referral|utmcct=/test.htm; com.sdsusa.vip.SDSM0100=D4B7C4454253E8346816D93D3F16D8CC"
network: Connecting http://demo.sdsusa.com:8060/sdsvip/servlets/CommonServlet?c=1426602130633&Action=LOG_USER_ENV_PROPERTIES&eop=eop with proxy=DIRECT
network: Connecting http://demo.sdsusa.com:8060/sdsvip/servlets/CommonServlet?c=1426602130633&Action=LOG_USER_ENV_PROPERTIES&eop=eop with cookie "JSESSIONID=D4B7C4454253E8346816D93D3F16D8CC; __utma=244664391.1894222523.1387464673.1405523540.1412630209.15; __utmz=244664391.1387814249.6.2.utmcsr=vipdemo.sdsusa.com:8080|utmccn=(referral)|utmcmd=referral|utmcct=/test.htm; com.sdsusa.vip.SDSM0100=D4B7C4454253E8346816D93D3F16D8CC"
network: Connecting http://demo.sdsusa.com:8060/sdsvip/servlets/CommonServlet?c=1426602130655&Action=GET_SESSION_ID&eop=eop with proxy=DIRECT
network: Connecting http://demo.sdsusa.com:8060/sdsvip/servlets/CommonServlet?c=1426602130655&Action=GET_SESSION_ID&eop=eop with cookie "JSESSIONID=D4B7C4454253E8346816D93D3F16D8CC; __utma=244664391.1894222523.1387464673.1405523540.1412630209.15; __utmz=244664391.1387814249.6.2.utmcsr=vipdemo.sdsusa.com:8080|utmccn=(referral)|utmcmd=referral|utmcct=/test.htm; com.sdsusa.vip.SDSM0100=D4B7C4454253E8346816D93D3F16D8CC"
basic: Starting applet teardown
preloader: Delivering: ApplicationExitEvent
preloader: Enqueue: com.sun.javaws.progress.PreloaderDelegate$4@1e88a3d
basic: Finished applet teardown
basic: Removed progress listener: sun.plugin.util.ProgressMonitorAdapter@cabc
basic: PluginMain.unregisterApplet: 1 from mananger sun.plugin2.applet.Applet2Manager@192ff6a
preloader: Start progressCheck thread
preloader: Stop progressCheck thread queue.size()=0
ui: plugin2manager.parentwindowDispose
preloader: Construct preloader delegate
preloader: Construct preloader delegate adapter=class com.sun.deploy.uitoolkit.impl.awt.AWTAppletAdapter
preloader: Construct preloader delegate
preloader: Construct preloader delegate adapter=class com.sun.deploy.uitoolkit.impl.awt.AWTAppletAdapter
preloader: Setting default preloader and progress monitor for non JNLP applets
basic: Added progress listener: sun.plugin.util.ProgressMonitorAdapter@1d41bee
preloader: Installing progress monitor true
security: Expected Main URL: http://demo.sdsusa.com:8060/sdsvip/vipmenu.jar
preloader: Using preloader class: null com.sun.deploy.uitoolkit.impl.awt.AWTAppletAdapter@1fc625e
preloader: Using default preloader
preloader: Requested to use preloader class: null
basic: error: CharacterEncoder.encode internal error.
preloader: Skipped all (0) download events prior to null
preloader: Setting default preloader and progress monitor for non JNLP applets
java.lang.Error: CharacterEncoder.encode internal error
basic: Added progress listener: sun.plugin.util.ProgressMonitorAdapter@7ce508
preloader: Installing progress monitor true
at sun.misc.CharacterEncoder.encode(Unknown Source)
at com.sun.deploy.util.SystemUtils.encodeString(Unknown Source)
security: Expected Main URL: http://demo.sdsusa.com:8060/sdsvip/AlertNotificationApplet.jar
at sun.plugin2.applet.Applet2Manager.getParametersString(Unknown Source)
at sun.plugin2.applet.Applet2Manager.getAppInfo(Unknown Source)
at sun.plugin2.applet.Plugin2Manager$AppletExecutionRunnable.run(Unknown Source)
at java.lang.Thread.run(Unknown Source)
preloader: Using preloader class: null com.sun.deploy.uitoolkit.impl.awt.AWTAppletAdapter@199bd52
basic: error: CharacterEncoder.encode internal error.
java.lang.Error: CharacterEncoder.encode internal error
at sun.misc.CharacterEncoder.encode(Unknown Source)
at com.sun.deploy.util.SystemUtils.encodeString(Unknown Source)
at sun.plugin2.applet.Applet2Manager.getParametersString(Unknown Source)
at sun.plugin2.applet.Applet2Manager.getAppInfo(Unknown Source)
at sun.plugin2.applet.Plugin2Manager$AppletExecutionRunnable.run(Unknown Source)
at java.lang.Thread.run(Unknown Source)
preloader: Added pending event 1: ErrorEvent[url=http://demo.sdsusa.com:8060/sdsvip/ label=CharacterEncoder.encode internal error cause=CharacterEncoder.encode internal error
security: Reset deny session certificate store
basic: Removed progress listener: sun.plugin.util.ProgressMonitorAdapter@7ce508
preloader: GrayBox: parent = sun.plugin2.main.client.PluginEmbeddedFrame[frame1,0,0,800x28,layout=java.awt.BorderLayout,title=,resizable,normal]
preloader: Using default preloader
preloader: Requested to use preloader class: null
preloader: Delivering: ErrorEvent[url=http://demo.sdsusa.com:8060/sdsvip/ label=CharacterEncoder.encode internal error cause=CharacterEncoder.encode internal error
preloader: Enqueue: com.sun.javaws.progress.PreloaderDelegate$4@12c709e
security: Reset deny session certificate store
basic: Removed progress listener: sun.plugin.util.ProgressMonitorAdapter@1d41bee
preloader: Start progressCheck thread
preloader: Delivering: ErrorEvent[url=http://demo.sdsusa.com:8060/sdsvip/ label=CharacterEncoder.encode internal error cause=CharacterEncoder.encode internal error
preloader: Enqueue: com.sun.javaws.progress.PreloaderDelegate$4@1385325
preloader: Skipped all (0) download events prior to null
preloader: Start progressCheck thread
preloader: GrayBox: parent = sun.plugin2.main.client.PluginEmbeddedFrame[frame2,0,0,180x47,layout=java.awt.BorderLayout,title=,resizable,normal]
preloader: Preloader shutdown after ErrorEvent
ui: Show default error panel
preloader: Stop progressCheck thread queue.size()=0
preloader: Preloader shutdown after ErrorEvent
preloader: Stop progressCheck thread queue.size()=0
ui: Show default error panel
security: Reset deny session certificate store
security: Reset deny session certificate store
preloader: Construct preloader delegate
preloader: Construct preloader delegate adapter=class com.sun.deploy.uitoolkit.impl.awt.AWTAppletAdapter
preloader: Setting default preloader and progress monitor for non JNLP applets
basic: Added progress listener: sun.plugin.util.ProgressMonitorAdapter@e556bf
preloader: Installing progress monitor true
security: Expected Main URL: http://demo.sdsusa.com:8060/sdsvip/SDSMErrorD.jar
preloader: Using preloader class: null com.sun.deploy.uitoolkit.impl.awt.AWTAppletAdapter@1023edb
preloader: Using default preloader
preloader: Requested to use preloader class: null
preloader: Skipped all (0) download events prior to null
preloader: GrayBox: parent = sun.plugin2.main.client.PluginEmbeddedFrame[frame3,0,0,10x10,layout=java.awt.BorderLayout,title=,resizable,normal]
basic: exception: null.
java.lang.NullPointerException
at java.io.Writer.write(Unknown Source)
at java.io.BufferedWriter.newLine(Unknown Source)
at java.util.Properties.writeComments(Unknown Source)
at java.util.Properties.store0(Unknown Source)
at java.util.Properties.store(Unknown Source)
at com.sun.deploy.cache.DefaultLocalApplicationProperties.putLocalApplicationPropertiesStorage(Unknown Source)
at com.sun.deploy.cache.DefaultLocalApplicationProperties.store(Unknown Source)
at com.sun.deploy.cache.BaseLocalApplicationProperties.clearMainPublisherAndTitle(Unknown Source)
at sun.plugin2.applet.Plugin2Manager$AppletExecutionRunnable.run(Unknown Source)
at java.lang.Thread.run(Unknown Source)
preloader: Delivering: ErrorEvent[url=http://demo.sdsusa.com:8060/sdsvip/ label=null cause=null
preloader: Enqueue: com.sun.javaws.progress.PreloaderDelegate$4@1d3dcf
security: Reset deny session certificate store
basic: Removed progress listener: sun.plugin.util.ProgressMonitorAdapter@e556bf
preloader: Start progressCheck thread
preloader: Preloader shutdown after ErrorEvent
preloader: Stop progressCheck thread queue.size()=0
ui: Show default error panel
security: Reset deny session certificate store


REPRODUCIBILITY :
This bug can be reproduced always.

---------- BEGIN SOURCE ----------
If you need source code, we will have to discuss offline.

I tried to put together a test case using simple, static, applets to simulate what I thought was happening, but could not reproduce the error with them.

The applets in the provided production web application communicate to a tomcat server for various things. I guess this communications is a significant part of the mix to force the failure.

My intention is to keep the public facing test server up for as long as you need it and them take it down after you give me the okay.
---------- END SOURCE ----------

CUSTOMER SUBMITTED WORKAROUND :
No known workaround. Dead in the water.