The Supreme Court case Smith et al. v. Illinois Bell Telephone Company in 1925 revolved around the issue of whether or not a state could regulate the rates charged by a telephone company for its services, specifically intrastate communication. The plaintiffs, Smith and others, argued that they were being overcharged by the Illinois Bell Telephone Company and sought relief from these excessive charges through legal action. The defendant, Illinois Bell Telephone Company contended that it was within their rights to set their own prices as per market conditions without interference from state regulation. The Supreme Court ruled in favor of the telephone company stating that while states do have power to control public utilities within reasonable limits under police powers granted by constitution; however this does not extend to setting specific rates for services provided by such companies unless those rates are so low as to be confiscatory or if there is an element of discrimination involved which was not proven in this case.

In the dissenting opinion for Smith et al. v. Illinois Bell Telephone Company, Justice Oliver Wendell Holmes Jr., joined by Justice Louis Brandeis, argued that the majority's decision was based on a misinterpretation of law and facts. They contended that the case should not have been decided solely on whether or not there had been confiscation under Illinois state law but also if it violated federal laws regarding due process and equal protection rights. The justices believed that even though rates set by public utilities may be low enough to cause financial loss, they are still lawful unless proven otherwise in court with substantial evidence showing their unreasonableness or oppressiveness towards consumers' interests. Furthermore, they disagreed with the majority's view about how much weight should be given to past profits when determining future rates; instead arguing that other factors like risk involved in business operations and current economic conditions must also be considered.