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Panasonic loses big in local case

May 3, 2002
Section: BUSINESS
Page: D1

By Ramon Coronado
Bee Staff Writer

--A Sacramento jury has ordered Panasonic to pay $3.2 million to a local office machine business for fraudulently terminating its contract.

The judgment, signed by a Sacramento Superior Court judge Thursday, ordered Panasonic Office Products to pay JRS Products Inc. $720,620 in compensatory damages and $2.5 million in punitive damages.

"This was a David and Goliath battle. It pitted the huge corporation against the family-owned business," said Sacramento attorney Edward Freidberg, who represented the Sacramento business.

At issue in the trial was JRS' sale of remanufactured toners for fax machines at about half the cost of new toners that Panasonic sold.

Panasonic contends it terminated its contract after the small company began pitching the toners in its marketing campaign as if they were endorsed by the giant electronics firm.

Daryl S. Landy, the lead attorney for Panasonic, couldn't be reached for comment Thursday.

According to court records, JRS Products is owned and operated by Jack R. Scarzella, his wife and their three children. In 1991, the family signed a contract with Panasonic to sell and service business grade fax machines in Northern California. Among Sacramento company's customers were Intel of Folsom, Pacific Bell and several state agencies.

The contract was overseen by Matsushita Electronic Corp. of America, which sold Panasonic products in the United States for the Matsushita Electrical Industries LTD of Japan.

Scarzella began remanufacturing the toners for about $45 each. He sold them to other dealers across the country for about $85, much cheaper than the $149 Panasonic charged dealers for new cartridges.

Dealers could then sell Scarzella's cartridges as low as $130 to their customers compared with $225 for new Panasonic cartridges, Freidberg said.

The quality between the new and remanufactured cartridges was indistinguishable, Freidberg said.

According to Landy's court papers, the trial had nothing to do with a big company protecting its profits. JRS was terminated in 1998 after it misused a letter from Panasonic saying the 7-year-old dealership was an authorized "Panasonic fax dealer in good standing."

Defense papers said JRS marketing materials sent to other Panasonic dealers "implied Panasonic's endorsement of the JRS remanufactured cartridges," which "confused and angered dealers."

But Freidberg called that argument bogus.

"The real reason they terminated Scarzella's dealership was because he was in competition with Panasonic," Freidberg said.

In the jury's verdicts they found that Panasonic "intentionally engaged in a wrongful conduct designed to interfere or disrupt" with JRS' business.

Though the jury didn't find Panasonic's actions to be "malicious" or "oppressive," they said the conduct was "fraudulent," which was the basis for the $2.5 million in punitive damages.

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The Bee's Ramon Coronado can be reached at (916) 321-1191 or rcoronado@sacbee.com.

  
  
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