The teacher needs to embrace the idea of a "teachable moment" since citation is a skill your child will need throughout his educational career.
I agree and I pulled this quote from the OP
He had originally turned in work completely in his own words but his teacher gave it back and said it wasn't enough. He did list his source in his bibliography
The teacher handed it back - that is when the teacher needed to explain cite your source - and when the student handed it back in logically a teacher that "edited" the paper in the first place should go directly to the questionable background, and at that time say "is this your own words" IF the student says yes, then you can somehow suggest the student plagerized then haul them off to "zero" and say nananana I caught you cheating!! (seriously I get the impression this teacher has it in for your child since the parents are so involved)
this was handled wrong, and its growing out of hand - you have to stand up for your child, but dont be surprised if the answer is no - you have to help your child through this - and taking it to the next level is a way of defending your child, to advocate for him!
(my son got an F in speech class in high school - he fainted in the middle of his speech - turns out he had a temp of 102 and mono - the teacher said there was nothing he could do, my son did a horrible job on that speech and refused to let my son take a make up!! I fought it, and lost, everyone said "their hands were tied" RIDICULOUS!)
so in the end, grades dont matter - does your sons teacher really want to lose the respect of your son, you as parents, and all the parents in the class that will also side with you?
somebody else made mention of how easy it is to make copyright infringement - esp in schools, esp in regards to teachers and the technology - music for instance, movies/dvd's shown in the classroom - that may have changed, but there was a time when our school told us we could not show anything unless it came from the school library!