Recently, the Dallas Court of Appeals weighed in on a difficult intellectual property issue regarding state law claims: where to sue a person or business that is wrongfully using your intangible property (e.g. trade secrets, trademarks, copyrights, and patents). In legal terms, we call this jurisdiction. A court must have jurisdiction over the claim to adjudicate the case. Normally, jurisdiction is provided by federal statue for copyright claims, trademark claims, and certain trade secret claims. However, the federal statutes require the copyright and trademarks at issue to have been federally registered. Often, if a federal claim is not possible, your lawyer may decide to file in state court.
The issue of where to sue is not ordinarily complicated; however, it can become so in state law cases where both Plaintiff and Defendant claim they own the intangible property that forms the basis of the claim. For example, if a Floridian business owner believes he owns intellectual property and uses it in Florida, and a Texas business owner believes he owns the same property and uses it in Texas, can the Texan sue the Floridian in Texas claiming Texas is the situs (location of property)? Can the Floridian sue the Texan in Florida claiming Florida is the situs? Is it simply a matter of who can file first and where?
Generally, in order to file a lawsuit in any state, the US Constitution requires that the Defendant have minimum contacts with that state. In certain cases, courts such as the United States have original jurisdiction, which often means they are the only court which may hear the case. In cases involving disputes over real property or personal injury, it is often easy to decide whether there is minimum contact because the location of the property or injury at issue is typically sufficient contact to satisfy the constitutional requirements for minimum contacts. For example, if you get into a car accident in Dallas county, then you may file your lawsuit in Dallas county (presuming no other contractual obligation to file in another forum exists).
However, when a case involves intellectual property, the property itself usually does not have a physical location. For that reason, the law creates a location called the “situs.” The situs is typically located in the state of the owner of the intellectual property. It is useful for determining where to tax intellectual property and for other similar purposes. However, it is not useful in determining minimum contacts for jurisdiction. By definition, the situs is located at the seat of the state of the owner.
In NF Holdings, LLC (Northern Frac Proppants, II, LLC v. 2011 NF Holdings, LLC, 05-16-00319-CV, 2017 WL 3275896 (Tex. App.—Dallas July 27, 2017, no pet.)), Plaintiffs, which are Texas companies, argued that Defendants, all non-Texans, stole Texas assets and misappropriated Texas trade secrets by using them to create a Wisconsin frac sand mine. The Texas companies argued that the harm was felt in Texas, because they were based out of Texas. The Defendants relied on a federal case and argued that minimum contacts required more than an allegation that the situs was in Texas and that the harm was felt in Texas. The Dallas Court of Appeals agreed with Defendants and dismissed the lawsuit, stating that Texas was the wrong place to sue.
This case is important for both Plaintiffs and Defendants in lawsuits. First, it illustrates a successful defense strategy in Texas. Second, it explains how intellectual property – like trade secrets – are different from tangible property, particularly for purposes of jurisdiction. Lastly, it illustrates the importance of finding the appropriate location to bring your lawsuit.
A lawsuit can be a costly endeavor and having to refile or transfer jurisdictions can only result in more costs. At Ritter Spencer Cheng, PLLC, our intellectual property and business law attorneys have experience in both defending and prosecuting misappropriation of trade secret claims. If you believe you have a trade secret misappropriation claim, please call our litigation team today at (214) 295-5070.