What's Next for North Carolina's Controversial 'Bathroom Bill'

North Carolina lawmakers and the U.S. Department of Justice filed dueling lawsuits this week, going up against each other over House Bill 2, the state's controversial "bathroom bill."

NC Gov. Pat McCrory, who signed the bill into law in March, said Monday he filed the suit along with Frank Perry, secretary of the North Carolina Department of Public Safety, to gain "clarity" on federal anti-discrimination laws. "We believe a court, rather than a federal agency, should tell our state, our nation and employers throughout the nation, what the law requires," he said.

Meanwhile, DOJ came out swinging yesterday, with Attorney General Loretta Lynch saying that North Carolina has "created state-sponsored discrimination against transgender individuals."

Here's what you need to know about the future of the law:

How We Got HereThe state's suit was filed in response to letters that DOJ sent last week warning North Carolina that federal funding could be withheld from the state because it says the law violates a number of federal statutes, including Violence Against Women Act, Title VII of the Civil Rights Act and Title IX, which impacts public universities.

HB2 directs all public schools, government agencies and public college campuses to require that multiple-occupancy bathrooms and changing facilities, such as locker rooms, be designated for use only by people based on their "biological sex" stated on their birth certificates. Transgender people can use the bathrooms and changing facilities that correspond to their gender identity only if they get the biological sex on their birth certificate changed.

The law also declares that state law overrides all local ordinances concerning wages, employment and public accommodations.

Since the bill was signed into law, activists, lawyers, companies and entertainers have accused the law of being anti-LGBT. Some businesses have halted planned expansions in the state, a number of states and cities have banned government-sponsored travel there, and celebrity entertainers, such as Bruce Springsteen, have cancelled appearances.

The American Civil Liberties Union (ACLU) brought its own lawsuit in March challenging the North Carolina law on behalf of two transgender North Carolinians, Joaquín Carcaño, a UNC-Chapel Hill employee, and Payton McGarry, a UNC-Greensboro student, as well as Angela Gilmore, a lesbian and North Carolina Central University law professor.

"We're challenging this extreme and discriminatory measure in order to ensure that everyone who lives in and visits North Carolina is protected under the law," Chris Brook, legal director of the ACLU of North Carolina, said in a statement.

Republican state lawmakers have held firm, accusing the federal government of exercising an "overbearing abuse of executive authority."

What Happens NowOn Tuesday, Democrats in North Carolina's General Assembly introduced the "Equality for All Act" to counter HB2.

The bill says it's designed to "protect all North Carolinians against discrimination in all walks of life."

"We have always known, and come to understand even more urgently during the HB2 debate, the incredible need for non-discrimination protections for LGBT and other North Carolinians," said Representative Chris Sgro, one of the sponsors of the legislation, in a statement. "This bill, along with the repeal of HB2, is the important next step that this General Assembly and Governor McCrory must take in order to make North Carolina a true state of equality and help heal our national reputation."

However, there isn't much chance of the legislation passing, according to Maxine Eichner, professor of law at UNC. "The leadership of the General Assembly certainly has not shown any willingness on ending this controversy by protecting gender identity and sexual orientation," she said. Republicans control the state's General Assembly.

The University of North Carolina Board of Governors held a special closed-door meeting today to discuss where to go next.

University President Margaret Spellings previously said in a statement that the university is "truly caught in the middle."

"The University takes its obligation to comply with federal non-discrimination laws very seriously. We also must adhere to laws duly enacted by the State's General Assembly and Governor, however. HB2 remains the law of the State, and the University has no independent power to change that legal reality," she wrote.

Where Things Go From HereThe dueling lawsuits were filed in different federal districts, but may end up being consolidated.

Eventually the cases will likely end up before the 4th Circuit Court of Appeals and potentially the Supreme Court.

"These are the kinds of things that the Supreme Court ultimately tries to settle," said Katherine Bartlett, professor of law at Duke.

If these lawsuits end up before the Supreme Court, the justices may make a significant ruling about whether the existing civil rights laws protect transgender people from discrimination on the basis of gender identity.

The looming presidential election is significant as well. The Obama administration has taken the position that the existing civil rights laws extend to gender identity discrimination, but it's possible that a future administration could take a different view, according to Kate Shaw, ABC News' Supreme Court consultant.