GoQii and Flipkart settle dispute, but questions remain

A controversial dispute over deep discounting between the Walmart-owned ecommerce giant Flipkart and fitness wearable provider GOQii has been resolved, with GOQii products expected to back up on Flipkart either this week or next, GOQii founder Vishal Gondal told MediaNama. However, Gondal was not forthcoming on the details of the settle, or now concerns that the company had raised about deep discounting and Flipkart’s alleged control over pricing of GOQii products on the marketplace, potentially in violation of India’s FDI norms, have been addressed.

The entire suit and complaint has been withdrawn on all parties, including Retainnet, Techconnect, entities that Gondal had said were discounting products on Flipkart without any direct interaction with GOQii. Gondal declined to comment on whether the company will have direct control over the pricing of its products now. The issue over control over pricing over products is more at a policy level, Gondal said.

Speaking with MediaNama earlier, Gondal had said that the company had suffered significant losses due to deep discounting of the products. He declined to comment on whether the settlement with Flipkart involves a monetary settlement as well, saying only that they’ve worked out an arrangement that is beneficial to both GOQii and Flipkart.

AIOVA, which was considering joining the case, seems to have also welcomed the settlement:

This development comes within a month after GOQii took legal action against the ecommerce company alleging the company of violating the terms of agreement by selling its fitness products at higher discount rate without permission.

Why the Flipkart-GOQii Case is important?

(Nikhil adds)

Ecommerce marketplaces operating in India have been under scrutiny for exercising excessive control over allegedly affiliated merchant entities, and have been potentially in violation of the FDI guidelines in India, which ban inventory-led e-commerce and seek to prevent marketplaces from also selling directly to customers. The FDI guidelines prohibit the marketplaces from making more than 25% of purchases of a vendor. There has been concern about monopolistic practices by marketplaces using deep discounting. The GOQii case is the first instance of a manufacturer taking a marketplace to court for deep-discounting of its products, and thus also effectively exercising control over pricing. GOQii had said in its notice to Flipkart that it can prove (via email and WhatsApp messages) that the marketplace has control over pricing, in violation of FDI norms.

GOQii’s problem with Flipkart was that the marketplace, with sellers like Retailnet and Tech-connect, which were unknown to GOQii, were discounting the products, which was impacting their enterprise sales business. Gondal told MediaNama that the company had lost orders worth lakhs of units, and the discounts were eroding the brands value via deep discounting:

“The minute a price touches a crazy Rs 999 number, two things happen: one is that the entities who had placed orders started canceling it, saying that now you give it to me at that price, less 10% discount. The second thing is that [businesses] started thinking that there is something hanky-panky going on between the procurement team and the people trying to sell, because if this product is available for Rs 999, then [they think] “why are we paying so much more for it“? It creates a problem with enterprise orders.”Finally, distributors working with us, who take the stock to sell, have had problems because people are saying that with these online prices, how can I buy it from you? Basically it disrupts the entire marketplace and distribution model for me. Because we have a multi-channel platform, and also from a price-perception perspective, if how the consumer perceives the product changes, it creates a big negative for us and the brand.

Gondal wants trademark owners to get more control over how products are sold on platforms, he had said. More on why GOQii was suing Flipkart here, in this detailed interview with Gondal.

Timeline and arguments

(As per documents with MediaNama. Note that Flipkart’s PR agency hasn’t responded to requests for comment or confirmation of the documents, and we’ll update this when they do.)

• May 18, 2019: GOQii sends a legal notice to Flipkart, accusing it of violating terms of their agreement by selling its fitness trackers at huge discounts without its approval. It references a supply agreement with Flipkart dated May 31, 2016 (amended November 2016 and September 2018). On September 11, 2018, the companies agreed on the MRP, lowest price drop, among other things, for the Vital and Pulse fitness bands. According to GOQii, they agreed that Vital, with an MRP of Rs 3,499, would be sold for no less than Rs 1,999 (43% discount); and Pulse, which retails for Rs 1,999, would not be sold for less than Rs 1,499 (25% discount).The notice called on Flipkart to immediately:
  • Stop selling GOQii products at unapproved discounted prices
  • Undertake that GOQii’s products will henceforth be sold only at mutually agreed MRP prices
  • Provide an account of the number of units it has already sold, and at what prices

• May 22, 2019: Flipkart sends a legal notice to GOQii Technologies, saying:
  • Flipkart is B2B and has no control over reseller price: Flipkart India Pvt Lt is a B2B cash and carry wholesale distributor, and doesn’t sell GOQii products on any platform. It only sells them to third party sellers who then sell them to distribution channels to end consumers. It thus cannot control the prices on marketplaces.
  • No control over pricing on Flipkart.com: While the www.flipkart.com marketplace is owned and operated by a Flipkart India Pvt Ltd group entity, the group entity doesn’t determine prices on the marketplaces.
  • Approval for pricing need not be taken from GOQii: No clause in the supply agreement says that approval for pricing has to be taken from GOQii if the products are sold by resellers. Clause 5 of the Supply Agreement, which Flipkart says that “no modification to margin/price terms will be allowed except by way of email” means that if GOQii wished to increase the price at which it sold its products to Flipkart, it would have to seek Flipkart’s written consent first, not the other way around.
  • Not predatory pricing: The allegation of “predatory pricing” did not apply as Flipkart was not “dominant enterprise”. It said the Competition Commission had concluded that in the wholesale B2B space, Flipkart’s market share was less than 5%.
  • FDI policy: Selling of products at a discount by the resellers on the marketplace do not violate the FDI policy.
  • Limited liability: Under Clause 12 of the Supply Agreement, Flipkart was not liable for any indirect / speculative / consequential damages suffered by GOQii, and that its total liability to the company could not exceed Rs 5,000.
  • It called on GOQii to withdraw its earlier notice.
• May 26, 2019: GOQii sent a follow on notice to Flipkart saying,
  • Flipkart’s notice contravenes the supply agreements, and is in contravention of e-Commerce regulations, FDI policy and rules.
  • Flipkart is contradicting itself: On one hand Flipkart is shrugging off their responsibility by stating that they have nothing to do with the price control mechanism, and on the other hand has approached GOQii under the agreement and admitted that under the agreement, Flipkart has the right to price the product, and if GOQii takes stocks back, Flipkart will withdraw the pricing and make the stocks inactive. This is based on Whatsapp interactions between Flipkart and GOQii representatives.
  • Flipkart India Pvt Ltd has control over pricing: Post the WhatsApp conversations, Flipkart updated the original prices of GOQii products on the ecommerce platform and app, indicating that Flipkart has control over pricing and/or discounts. Clause 5 states that price modification will only be allowed over email, and since Flipkart hasn’t obtained any approval, they’re violating the terms of the agreement.
  • GOQii has evidence, emails and WhatsApp messages, giving evidence that Flipkart has dealt directly with GOQii and has full control over pricing and discounting and hasn’t been acting in an independent manner.
  • Products being sold on Flipkart might be counterfeit and should be removed:Flipkart isn’t disclosing seller details to GOQiiFurther, who have had no contract with GOQii, and its surprising how they’re able to sell these products at an 80% discount on Flipkart.
•  May 27, 2019:  Mumbai Civil Court had passed an ad-interim order saying,
  •  Online sellers such as Retailnet, Tech-connect and Flipkart are banned from selling GOQii products. The notices were issues to Flipkart and Walmart.
• June 17, 2019: GOQii begins the process of withdrawing the case, as the companies settle out of court. GOQii products are expected to be back on Flipkart this week or next.