In the case of Zenith Radio Corp. v. United States in 1977, the Supreme Court ruled on whether or not a company could claim tax deductions for payments made to its foreign subsidiaries under Section 482 of the Internal Revenue Code (IRC). The court held that such payments were deductible if they were arm's length transactions - i.e., if they would have been reasonable had they occurred between unrelated parties. Zenith Radio Corporation had established several overseas subsidiaries and transferred patents and technical information to them without charge, but required them to pay royalties based on their sales using these assets. The IRS argued that these royalty payments exceeded what would be charged in an arm's-length transaction and therefore disallowed some of Zenith’s claimed deductions related to these royalties. However, the Supreme Court disagreed with this interpretation by ruling in favor of Zenith stating that there was no clear evidence showing that the rates charged by Zenith were higher than those typically paid for similar rights.

In the dissenting opinion for Zenith Radio Corp. v. United States, Justice William Rehnquist argued that the majority's decision was inconsistent with previous case law and expanded the scope of antitrust laws beyond their intended purpose. He contended that there was no evidence to suggest a conspiracy between Japanese companies and their government to monopolize U.S markets, as alleged by Zenith Radio Corporation. Furthermore, he disagreed with the majority's interpretation of "direct effect" in relation to foreign trade activities under Sherman Act jurisdiction; asserting it should only apply when domestic competition is directly affected by foreign conduct - which wasn't proven in this case according to him. Lastly, he expressed concern over potential diplomatic implications from allowing private corporations like Zenith Radio Corporation to sue foreign governments based on speculative allegations without substantial proof.