For serial entrepreneur John Ossenmacher, founder, president, and CEO of ReDigi, which bills itself as “the world’s first pre-owned digital marketplace,” the copyright infringement case filed by Capitol Records in U.S. District Court in Manhattan at the start of the year to shut it down is only a “hiccup in the road.” ReDigi, which launched its Web site ( with used digital music late last year, is poised to start reselling e-books once the case is resolved. Ossenmacher and CTO Larry Rudolph, who took a leave of absence from his work at MIT, are eager to do so, since e-books will have a much higher ticket price than 69¢ songs. Their goal is to unlock the billions of dollars that consumers have invested in digital goods by reselling them, using the partners’ patented cloud-based technology, which enables them to weed out pirated goods.

If ReDigi prevails in court, it could upend the way e-books and other digital products are sold, since such products would get a second life on the resale market and provide a new revenue stream for publishers and authors. Ironically, the Cambridge, Mass.–based firm could be competing for customers with its neighbor at the Cambridge Innovation Center, Amazon. Currently, ReDigi can’t resell Amazon’s music or other digital files; it is partnering with iTunes.

Capitol’s suit against ReDigi, which is wending its way through the same courthouse that is hearing the Department of Justice price-fixing suit, revolves around whether the first-sale doctrine in U.S. copyright covers digital content. This is the same doctrine that enables bookstores to sell used books. In its initial filing, Capitol noted: “While ReDigi touts its services as the equivalent of a used record store, that analogy is inapplicable: used record stores do not make copies to fill their shelves.” However, ReDigi has already won a critical skirmish. In February, the company defeated a preliminary injunction. “This is a fascinating issue,” said Judge Richard J. Sullivan, when he turned down Capitol’s motion. “It raises a lot of technological and statutory issues.”

Ossenmacher calls the ReDigi concept of reselling digital files “revolutionary.” For books, it translates into income for both publishers and authors for the first time for used work. “A huge part of what we’ve done,” said Ossenmacher, “is to allow publishers to become part of the secondary market and get revenue whenever their creative work is sold.” Beyond that, ReDigi will be able to offer publishers sophisticated data about who reads their books and how often before the book is resold, as well as readers’ favorite passages and the ones they skipped.

Because of the lawsuit, ReDigi is working with artists directly to funnel payments when their music is sold, rather than doing it through the labels. Musicians can sign up for its Artist Syndication program to receive 20% of the sale of their pre-owned music. Further down the line, they will be able to sell music direct on ReDigi. As for e-books, Ossenmacher said that ReDigi plans to pay authors through their publishers. Publishers and authors will get paid in cash; sellers get cash or credit in their ReDigi account.

Ossenmacher is convinced that there’s a large audience for used e-books. “As a company, we’re most excited about the book part,” he said. “In our book beta, people loved it. They said, ‘I never thought I’d be an e-book user, but it’s so much less expensive.’ ” He also emphasizes that ReDigi is here to help publishers. It doesn’t modify their files. Instead it adds a marking that enables it to know if an e-book starts showing up on a file-sharing site. “One of the beauties of ReDigi is it gives publishers a whole new control,” he said.

Oral arguments in the Capitol case will be heard October 5.