If you buy a CD and decide you don't like it, you can sell it on eBay or to your local record shop. But what about that Ke$ha song you downloaded from iTunes on a whim? Is that destined to take up space on your hard drive forever? John Ossenmacher, an entrepreneur in Cambridge, Massachusetts, doesn't think it should be. He is the founder of ReDigi, an online marketplace that lets fickle music fans buy and sell "used" digital songs. Members store their purchases on ReDigi's cloud-based servers, and, rather than cash, sellers get credits to buy more songs, which generally sell for 79 cents each, on the site. The company has raised $1 million in venture capital and attracted more than 100,000 users since launching last October. "It's such a new concept that it's hard for people to get their heads around it," Ossenmacher says. "But once they do, they get really excited about it."

"When you buy something, you own it. It's insane that people think they can take this right away from people."

Yet ReDigi is more than a forward-looking business. It has also become a test case for how we think about—and assign value to—digital content. In January, Capitol Records sued ReDigi, alleging copyright infringement and asking a judge to force the start-up to remove all Capitol recordings from the site. The label is also seeking damages of $150,000 per track. A New York federal judge declined Capitol's request, and a trial is set for August. "ReDigi's business model is built upon the making and selling of unauthorized copies of our artists' music," says Alasdair McMullan, an attorney for Capitol's parent company, EMI.

The music industry is not exactly known for embracing technological change, and Ossenmacher figured that ReDigi would face some resistance. But digital music is a $5.2 billion market, and Ossenmacher, a 52-year-old serial entrepreneur who has launched three tech companies, found the opportunity too rich to ignore. In fact, the site's software—designed with Larry Rudolph, a professor at the Massachusetts Institute of Technology—was created with objections such as Capitol's in mind. To adhere to U.S. copyright laws, ReDigi's software transfers songs from one user to another without copying them. It also does not work with songs that have been illegally downloaded or ripped from CDs: ReDigi's verification software scans users' libraries and determines what can legally be sold. What's more, 20 percent of each sale goes to the artist, roughly twice what most performers get on iTunes. (Artists must register with ReDigi to receive payments.) "For the first time in history, artists get a piece of the secondary market," Ossenmacher says.

Nonetheless, many in the music business fear that ReDigi is simply another step in the erosion of the value of intellectual property. "It's kind of shady," says Lee Cohen, manager of the Dandy Warhols. "It's selling the exact same thing for half the price. At least with a used CD, there's the chance it could be scratched."

The court's decision will determine how first-sale doctrine, which holds that you can sell objects you own, applies to digital goods. In other words: Is a digital music file an object? Capitol Records claims it is not, noting that the terms of service for iTunes requires that music purchased on the service is for personal use only. Ossenmacher sees it differently. "When you buy something, you own it," he says. "It's insane that people think they can take this right away from people."

If Ossenmacher sounds a tad exasperated, it's not hard to see why. Since the suit was filed, labels that had been enthusiastic about the service have taken a wait-and-see attitude. So have many would-be users. But Ossenmacher is determined to move forward. Later this year, the company will begin allowing users to resell used digital books and games.