The case pitting free speech, religion and artistic freedom against anti-discrimination laws is the most significant for gay rights since the high court approved same-sex marriage two years ago.
Supporters of both sides gathered outside the court and inside the crowded chamber as lawyers presented their arguments to the nine Supreme Court justices during a 90-minute hearing.
The landmark case pits gay couple Dave Mullins and Charlie Craig against Colorado bakery owner Jack Phillips, who refused in July 2012 to make a cake for their wedding reception.
The four liberal-leaning justices appeared to favor the argument that Phillips, owner of Masterpiece Cakeshop, should be obliged to provide service to all customers, regardless of sexual orientation.
Colorado law prohibits discrimination on the basis of race or sexual orientation, and both the state civil rights commission and an appeals court ruled against Phillips, sending the case to Washington.
The conservative members of the court appeared to be more receptive to the argument that Phillips, who describes himself as a "cake artist," should not be forced to create something that conflicts with his religious beliefs.
Jack Phillips, owner of Masterpiece Cake. Source: AAP
Justice Anthony Kennedy, who wrote the 2015 opinion that sanctioned same-sex marriage, is considered the crucial swing vote in the case.
Kennedy, who generally sides with the conservative faction, had sharp questions for both sides, but he seemed to put great emphasis on Phillips' First Amendment right to free speech.
'Cake expresses a message'
The first question taken up by the court was whether a cake can be considered artistic expression.
"The primary purpose of a food of any kind is to be eaten," said Justice Sonia Sotomayor, one of the four liberal court members.
Kristen Waggoner, an attorney for Phillips, countered that his elaborate wedding cakes were more than just food.
"When we have someone that is sketching and sculpting and hand-designing something, that is creating a temporary sculpture that serves as the centerpiece of what they believe to be a religious wedding celebration," Waggoner said. "That cake expresses a message."
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She cited the First Amendment in defense of Phillips.
"The First Amendment prohibits the government from forcing people to express messages that violate religious convictions," Waggoner said.
"Yet the commission requires Mr. Phillips to do just that, ordering him to sketch, sculpt, and hand-paint cakes that celebrate a view of marriage in violation of his religious convictions."
The Trump administration filed a brief in support of Phillips, who has said he believes marriage can only be between a man and a woman, and Solicitor General Noel Francisco made an appearance on his behalf.
"I don't think you could force the African-American sculptor to sculpt a cross for the Klan service," Francisco said in a reference to the white supremacist Ku Klux Klan.
David Cole, an attorney for Mullins, a 33-year-old poet and musician, and Craig, a 37-year-old interior designer, said he respected the sincerity of Phillips' convictions.
"(But) no one is suggesting that the baker has to march in the parade," Cole said.
"There was no request for a design," he said. "There was no request for a message."
'Humiliated for who we were'
Mullins and Craig told AFP in an interview this week that they were emotionally devastated after Phillips turned them down in a brief meeting at the bakery.
"We were simply turned away because of who we were," Mullins said. "We were publicly humiliated for who we were."
Mullins, Craig and civil rights groups have warned that if Phillips is victorious, other businesses could cite religious beliefs to refuse service to gay customers.
Justice Elena Kagan made such a reference while questioning Phillips' attorneys.
"You have a view that a cake can be speech because it involves great skill and artistry," she said. "If that's the case, how do you draw a line?
"How do you decide, the chef and the baker are on one side," she said, "versus the hairstylist or the makeup artist?"
Some 20 states, dozens of members of Congress and Christian lobbyist groups have thrown their weight behind the baker.
Supporters of both sides gathered for days outside the court for the chance to watch the session and were out in force on Tuesday.
"We got your back Jack," read signs backing the baker.
"Use me not for your bigotry," read a sign displayed by a Mullins-Craig supporter who was dressed in a costume as the "Holy Bible."
