In the 1935 case Fox Film Corp. v. Muller, the United States Supreme Court ruled in favor of Fox Film Corporation, overturning a decision by New York's highest court that had held Fox liable for damages after it refused to distribute a film as per its contract with an independent movie theater operator. The Supreme Court found that because federal copyright law gave Fox exclusive rights to decide when and where their copyrighted films would be shown, state courts could not interfere with those rights by enforcing contracts contrary to them. This ruling reinforced the principle that federal law takes precedence over state laws or rulings if there is any conflict between them.

In the dissenting opinion for FOX FILM CORP. v. MULLER, Justice Stone argued that the New York law requiring film companies to pay a percentage of their gross receipts as tax was unconstitutional because it violated the due process clause of the Fourteenth Amendment. He contended that this type of taxation is discriminatory and arbitrary since it does not take into account expenses or losses incurred by businesses, thus potentially leading to situations where they could be taxed even when operating at a loss. Furthermore, he believed that such an approach discourages business activities and investments in films which are already risky ventures with uncertain returns. Therefore, according to him, this kind of legislation goes beyond what is permissible under state taxing power and infringes upon federal jurisdiction over interstate commerce.