Another steamboat operator, Thomas Gibbons, bypassed the monopoly held by Fulton, Livingston, and Ogden and started running his own ships between New York and the New Jersey ports. Ogden convinced a New York state court to prevent Gibbons from accessing the waterways, and Gibbons sued Ogden.

The case wound up in front of the Supreme Court, which ruled for neither party, really, although Gibbons won a nominal victory. The decision handed by Chief Justice John Marshall in 1824 was a reiteration of the power of the federal government, in this case the Commerce Clause of Article I, Section 8 of the Constitution: Congress has the power to "regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes."

The Court, agreeing with arguments put forth by the famous Daniel Webster, said that because the steamships were operating between states, the result was interstate commerce, which the federal government had the express power to regulate.

The decision invalidated the monopoly granted by the State of New York, meaning that Gibbons could, in fact, run his steamships between the two states as often as he liked, without legal interference from Ogden or anyone else.