After the opening of the Pearl Street Station, Edison underwent a series of legal and market battles. The first of these was with the inventor Joseph Swan, who filed suit against Edison in 1881. Swan claimed that he had prior claim to the ideas Edison utilized in preparing his lamp, a claim that was almost certainly true, but Edison was the one who produced a practical version of this lamp. All the same, a court victory was uncertain, and Edison went to Swan with a settlement plan. In 1883, the two inventors created Edison and Swan United Lighting Company, Ltd. In 1886, the British courts upheld Edison's basic carbon filament patent, keeping competitors from initiating legal actions of their own. This victory gave Edison and Swan United a near monopoly on the business until 1894.

A number of other competitors filed suit against Edison between 1885–1900 after the U.S. patent commissioner ruled that another inventor had established precedence to an electrical lamp with carbonized paper. The Edison group spent almost $2 million defending itself in court. The protracted legal battles drained the company of capital and kept its focus off of inventing for half a decade.

The most important battle began in 1885, when Edison's group filed suit against the United States Electric Company and George Westinghouse, for infringement of the carbon-filament patent. After complex and difficult legislation, the courts eventually upheld Edison's patent in 1891 and again in 1892. Instead of giving up, Westinghouse quickly set about battling Edison in a more effective way: in the marketplace.

Westinghouse was a self-taught electrician and inventor whose primary inventions lay in train technology. Among other things, he had invented an air brake for trains in 1869. He became Edison's primary rival in 1886, when he built the first commercial AC system in Buffalo, New York.

Westinghouse began developing this system in 1885. He was disenchanted with Edison's system, the direct current system (DC), which had distance limitations because voltages could not travel far on a line without losing power. Edison's system was most useful in densely populated urban areas. Westinghouse envisioned a long-distance transmission system with alternating current, or an AC system. He created one with a new transformer that reduced high transmission voltages of up to 1000 Volts to safe levels by reducing voltages at substations along the line.

Edison's DC system transmitted voltages at only 240V, but he contended that his was the safer and more effective system. As AC systems rapidly gained market share, a nasty public battle ensued over the safety of Westinghouse's system. As AC system voltages were used for new electric chairs and to kill cats and dogs, Edison turned his crusade against Westinghouse into a crusade for public safety. Meanwhile, Westinghouse concentrated on developing the system devices that would make his AC system dominant in the field. He also took advantage of special opportunities to publicize his AC system, such as the famous "White City" exposition at the Chicago World's Fair in 1893.

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