Money Matters - Simplified

Goof up at Pepsico may cost it $1.26 bn

The case filed by two Wisconsin men alleges that in 1981 they entered into confidentiality agreements with an executive of Watertown-based Pepsi products distributor Wis-Pak Inc. and an executive of Carolina Canners Inc. of Cheraw, S.C., about their idea for bottled water, which Pepsico managed to steal somehow

New York, October 29 -- Ignorance is not bliss! The snack and drink maker Pepsico (NYSE: PEP) has learnt it the hard way though.

A Wisconsin judge has ordered the New York-based behemoth to pay a whopping $1.26 billion to two men who claim that the company stole their idea to sell purified water.

Charles Joyce, of Juneau, Wisconsin, and James Voigt, of Cleveland, Wisconsin, sued PepsiCo in April, soliciting a jury trial and indemnity of more than $75,000.

The judgment amount is equal to more than 20 percent of PepsiCo's profit from the Aquafina, the bottled water under dispute.

The court granted the award without a trial, also known as a default judgment, after Pepsi failed to respond and fight the accusation. In fact, Pepsi did not know about the lawsuit until almost a week after the court granted the award.

Failure at the company’s end
PepsiCo spokesperson, Joe Jacuzzi acknowledged that the company failed to respond due to "an internal process issue".

The problem arose because Pepsico was served the lawsuit at the place of its incorporation, i.e. North Carolina, instead of its headquarters i.e. Purchase, New York.

The bigger blip, however, was that the secretary who received letters pertaining to the lawsuit failed to act on them.

The offender, Secretary Kathy Henry, received a letter regarding the lawsuit but put it away and did not refer it to anyone "because she was so busy preparing for a board meeting," mentioned PepsiCo in its Oct. 13 motion.

Asking the court not to enforce the judgment, the company termed Henry's failure to forward the letter "excusable neglect".

"While we acknowledge there was an internal process issue, we have been denied due process as we do not believe the plaintiffs complied with the legal requirements to properly serve PepsiCo with their motion for default judgment," Jacuzzi said.

Dubious accusations
Terming the accusations as dubious, Jacuzzi said that Pepsico would urge the court to toss out the ruling or at least give the company a chance to fight the accusations.

"The plaintiffs' claim — that in 1981, they gave someone other than PepsiCo an idea for a 'soft drink' and that somehow, 15 years later, PepsiCo used that alleged information to develop the Aquafina Water products — is completely dubious and without merit," Jacuzzi said.

PepsiCo's local attorney, Robert W. Roth, of Menomonee Falls, contends the judgment is "unprecedented" and that the company has "strong defenses" against it.

"The sole basis for the plaintiffs' claims - the confidentiality agreements - are nearly 30 years old and fail to show any connection between the alleged trade secret and PepsiCo's sale of Aquafina," Roth argued in court documents.