Robert Fulton and Robert Livingston were dominant steamboat operators who acquired a legal 10 year monopoly from the New York Legislature. Every steamboat operated in New York had to have a licence by them. Other states were unhappy with this monopoly and even banned these steamboats from their waters.
In 1815, after Livingston and Fulton died, Aaron Ogden and Thomas Gibbons acquired one of these licences and began their monopoly. Personal disagreements destroyed their friendship, and they became rivals. Ogden filed a lawsuit claiming to be the rightful owner of the steamboat service and Gibbons was thrown from the steamboat corporation.
Many states disagreed with the legislature that New York allowed to pass for these steamboats to control the waters. Free trade was threatened when other states allowed for these monopolies to occur in their waters. Many defendants against lawsuits attempted to have their disagreements declared unconstitutional.
Thomas Gibbons lost all the rights to the steamboat industry against Ogden, yet continued to take steamboat business from Ogden. He went to court in 1818 and appealed that under the Coasting Act of 1793, he had obtained a steamboat license. He argued that under Artice 1, Section 8 of the Constitution, Congress had authority to control interstate commerce.
Aaron Ogden argued that the rights of Congress to control interstate commerce did not apply because New York did nothing to regulate the commerce. The monopoly on operating steamboats regulated navigation and not commerce.
The Supreme Court ruled in favor of Thomas Gibbons, stating that under the Commerce Clause, Congress had the power to regulare commerce.
The Supreme Court decided that the states cannot mess with the rights of Congress in the Commerce Clause, so the monopolies that New York granted were technically congressionally illegal.