Where Do IP Disputes Get Decided? Federal Court, State Court or Arbitration

Start with the right, then read the contract

The court that decides an intellectual property dispute is fixed partly by Congress, partly by the parties and partly by choice. Congress has reserved some claims to federal court and opened it to others. The parties may have agreed to arbitrate, or to litigate in a named forum. Within what remains, the plaintiff chooses, and the defendant may be able to move the case. The analysis therefore runs in order: what kind of right is at stake, what the agreement says, and then which of the available courts serves the client.

The general state-versus-federal question for business cases is covered in will my business case be in state or federal court. This article applies it to the IP claims a Dallas business is likely to have.

Patents and copyrights: federal court only

Under 28 U.S.C. § 1338(a), the federal district courts have original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trademarks, and no state court has jurisdiction over any claim arising under the patent, plant variety protection or copyright laws. A claim that a competitor copied your website, your software or your product design in a way that infringes a copyright or patent must be filed in federal court. Any Texas claims that arise from the same facts, such as breach of a license or unfair competition, come along under the court's supplemental jurisdiction.

The exclusivity has an edge case that matters for licensing disputes. A case that merely requires the court to construe a license and award contract damages does not arise under the copyright laws, even though a copyright is involved, and belongs in state court unless another basis for federal jurisdiction exists. A case that asks for copyright remedies for use beyond the license does arise under federal law. Which side of that line a dispute falls on is discussed in the library's article on IP licensing disputes.

Trademarks: a real choice

Trademark is the exception in section 1338(a): the federal courts have jurisdiction, but the statute does not take it away from state courts. Section 39 of the Lanham Act, 15 U.S.C. § 1121(a), gives the federal district courts original jurisdiction over all actions arising under the Act without regard to the amount in controversy or to the citizenship of the parties, and Texas state courts may also hear Lanham Act claims. A Texas Trademark Act claim under chapter 16 of the Business and Commerce Code, and common law infringement and unfair competition claims, can be brought in either court as well.

Most trademark cases are filed in federal court for practical reasons: the judges see trademark cases regularly, the Fifth Circuit's likelihood-of-confusion framework governs directly, nationwide service and discovery are simpler, and the Lanham Act's injunction presumption and remedies are applied in the court that wrote the case law on them. State court is chosen when the dispute is local, the plaintiff prefers a Texas jury and the Texas procedural tools, or the trademark claim is secondary to a larger Texas contract or partnership fight. A defendant sued in state court on a Lanham Act claim can generally remove the case to federal court, so a plaintiff who wants to stay in state court often pleads only Texas claims.

Trade secrets: state court by default, federal by the DTSA

A claim under the Texas Uniform Trade Secrets Act is a state law claim, and with Texas parties on both sides it belongs in Texas state court. Two things open the federal courthouse. The first is diversity of citizenship with a sufficient amount in controversy, where the defendant or the new employer is an out-of-state company. The second is the Defend Trade Secrets Act: 18 U.S.C. § 1836(c) gives federal district courts original jurisdiction over civil actions under it, so a plaintiff who pleads a DTSA claim for a trade secret related to interstate commerce may file in federal court and attach the TUTSA, contract and fiduciary claims under 28 U.S.C. § 1367. The federal court may decline supplemental jurisdiction over the state claims in listed circumstances, including when it has dismissed every federal claim, but in practice the claims travel together.

When federal court is worth choosing in a trade secret case, and when it is not, is the subject of when to sue under the federal Defend Trade Secrets Act. The short version: the DTSA adds a forum, not a different result, and the choice usually turns on the judge's calendar for an emergency hearing, the location of the defendants and the preferred procedural rules.

Contracts: NDAs, licenses, assignments and non-competes

Disputes over confidentiality agreements, licenses, IP assignments and employment covenants are contract cases, and contract cases are state court cases unless diversity or an attached federal claim moves them. A Dallas company suing a Dallas former employee for breaching an NDA, with no federal claim pleaded, is in Dallas County district court. Add a DTSA claim and the same case can be filed in the Northern District of Texas. Most of these agreements also carry a forum selection clause, a choice-of-law clause or an arbitration clause, and those clauses control before any of the above matters.

Arbitration clauses

An arbitration agreement that covers the dispute removes it from court altogether, federal or state, and courts enforce such agreements under the Federal Arbitration Act and the Texas Arbitration Act. Licenses, vendor agreements, employment agreements and partnership agreements commonly contain them, and their scope language, such as any dispute arising out of or relating to this agreement, is usually read broadly enough to cover trade secret and infringement claims between the parties. Statutory IP claims are arbitrable. What arbitration does not easily supply is an emergency injunction against a third party who never signed, such as a new employer, which is why many arbitration clauses carve out injunctive relief or allow a court to grant provisional remedies in aid of arbitration. Whether a clause will be enforced is covered in is the arbitration clause in my contract enforceable in Texas.

The Texas Business Court: where IP claims fit, and where they do not

The Texas Business Court, which began hearing cases in 2024, has jurisdiction defined by section 25A.004 of the Government Code. Its categories are organizational: derivative proceedings, governance and internal affairs disputes, securities and trade regulation claims against an organization and its insiders, claims against owners and managers for acts in that capacity, and actions under the Business Organizations Code, where the amount in controversy exceeds $5 million; and qualified transactions, commercial contracts in which the parties agreed to business court jurisdiction, and certain Finance Code and Business and Commerce Code violations, where it exceeds $10 million. There is no category for trademark, copyright or trade secret claims as such.

Two features of the section matter for IP disputes. Section 25A.004(g)(2)(A) excludes claims arising under the Business and Commerce Code's subchapter on covenants not to compete, and under the Deceptive Trade Practices Act, so a non-compete enforcement case does not belong there unless it rides in under supplemental jurisdiction. Section 25A.004(f) allows the court to hear related claims that form part of the same case or controversy only if every party to the claim and the judge agree. A trade secret claim can therefore reach the Business Court when it is attached to a qualifying dispute, such as a fight among owners over a company's confidential information, and all sides consent; it cannot be filed there on its own. The court's scope is explained in the Texas Business Court: which cases qualify.

Which courthouse in Dallas

For a Dallas business the federal choice is the United States District Court for the Northern District of Texas, Dallas Division, which hears trademark, copyright, patent and DTSA cases from Dallas and the surrounding counties; Fort Worth, Plano and other North Texas locations fall in the Northern or Eastern District depending on the county. The state choice is the Dallas County civil district courts, or the district courts of the county where venue lies under the Texas rules. Venue within Texas follows the general venue rules of the Civil Practice and Remedies Code and any contractual forum clause.

Example

Suppose a Plano software company discovers that a former sales director, now at a Houston competitor, has taken its pricing models and is using a product name confusingly similar to its registered trademark. Its claims are TUTSA and breach of the employment agreement against the director, and trademark infringement and DTSA misappropriation against the competitor. The employment agreement has an arbitration clause with a carve-out for injunctive relief. The company can file in the Eastern District of Texas, Sherman Division, where Plano sits, pleading the Lanham Act and DTSA claims as the federal hooks and the Texas claims under supplemental jurisdiction, and seek a preliminary injunction against both defendants. The director may move to compel arbitration of the damages claims against him under the employment agreement, which the court would likely grant while the injunction proceeds, because the clause carves it out. The competitor, which signed nothing, stays in federal court. The company could instead have filed everything in Collin County district court on the Texas claims alone, but the competitor could remove the Lanham Act claim, and the pricing models' interstate use makes the federal forum the more predictable route.

How the choice is actually made

• Is any claim federal-only? Copyright or patent means federal court, full stop.
• Is there an arbitration or forum clause? It controls among the signatories, subject to injunction carve-outs.
• How fast do you need a hearing? Both systems can move quickly, but individual judges' calendars differ, and counsel's knowledge of the local bench matters.
• Who are the defendants and where? Out-of-state parties and nationwide discovery favor federal court.
• Which procedural tools do you need? Texas Rule 202 pre-suit depositions, Texas sealing and TUTSA's secrecy provisions on one side; federal subpoena reach and the federal rules on the other.
• Jury considerations. Both courts offer juries; the pool and the practice differ.

Tina Wysk represents Dallas businesses in trade secret, trademark and licensing disputes in federal and state courts and in arbitration; the practice is described at intellectual property disputes.