Actually have mod points for once, but I'd rather expand on this point than mod it up (though I think it deserves a bump).
I'm kind of surprised that Ray's representing them. This really seems like it has lots of problems from the get go. The precedents don't look good to me. It seems like another "brilliant" idea in the vein of Psystar (and we all saw where that lead).
Here's a similar process, see if passes the smell test:
1. Buy used book
2. Scan used Book
3. Destroy book, sell DRM loaded PDF
After reading through the statement describing the process it appears that it has to start out as a digital file, but it still breaks down to:
Upload the (digitally purchased) item to a "locker"
Destroy all the copies that are currently on attached media (at least that they can find)
Sell the key to that part of the locker to someone else.
I still see some big holes here:
It appears this relies on the file being iTunes PLUS (not DRMed, but stamped). This is likely to bring back DRM. Not your client's problem (until it happens) but brings back the bad old days. It's also unlikely to work on anything that already had DRM not replaced by "upgrading" since that has ties into iTunes for authorization. Also they seem to rely on the hashed version Apple is now using to stamp these files, but they claim they don't decrypt this info, but rely on the hash as unique, but at the same time they say that they determine that it is actually owned by THAT user. How can they know it's owned by that user but leave the stamp encrypted?
It assumes that the user has no backups or other computers which could contain copies of the original iTunes purchases. Apple has been very persistent in reminding people to back up their iTMS purchases. Also, I've never done it, but isn't there a method that you can contact Apple to re-download purchases in the event of a disaster. What's to prevent me from "selling" all my iTMS purchases through this service, then un-installing and either restoring from backup or requesting new copies from Apple?
I also believe that under iTMS terms of service they explicitly state that the files provided are licensed, not sold. I'm sure you plan to try some attack on that tack, but that still leads me to this heading the way of Psystar. If the end-user never really bought anything but a license, then they don't really have a first sale argument.
Full disclosure: I'm a singer/songwriter (rights holder), and not a laywer, but I do follow these sorts of cases. I don't see how this is going to go your way (ultimately). First sale is an important right, but it's crap like this that will get legislation to override it. I think you're kicking the hornets nest (and for the wrong people).