One-year-old start-up ReDigi is battling music giant EMI over whether digital music can be retraded after it has been legally purchased.
ReDigi says that its software is designed to comply with existing United States copyright laws.
But EMI argues a legal principle which allows consumers to resell purchased material goods does not apply.
A judge at the district court in Manhattan, New York, will hear opening arguments in the case on Friday after EMI sued ReDigi for copyright infringement earlier this year.
Launched in October 2011, ReDigi bills itself as the first legal online marketplace for second-hand digital material.
The company says thousands of people downloaded its software in the weeks after launch, but it says growth slowed after Capitol Records, a subset of EMI, sued in January.
EMI argues that digital music is not the same as CDs or books, meaning that the “first sale doctrine” does not apply.
It says that the only way to move music around involves making duplicates, and there is is no way to guarantee all the original owner’s copies of the files have been deleted.
The lawsuit will be closely watched by the wider media industry as it could set a precedent.
Search giant Google has written a letter to the judge arguing that the company had a “specific and vital interest” in the outcome.
“I think it could absolutely transform the industry,” Benjamin Shiller, a professor in economics at Brandeis University, told the BBC.