Digital piracy is a major threat to the industry
German police have raided premises in the southern area of the country as part of their first attempts to crackdown on people who illegally swap music files online.
Police carried out the raid in Furth last month, the International Federation for the Phonographic Industry (IFPI) said on Wednesday.
The suspect was believed to be operating an "open peer" internet service, illegally sharing music files with thousands of other computer users.
The IFPI said up to one million files had been downloaded, the equivalent of tens of thousands of albums.
It also said more than 3,000 people had made use of the service over several weeks.
During the raid the police seized six computers thought to have been used for the file-swapping service.
Jay Berman, chief executive and chairman of IFPI said: "This is an important step by Germany, coming at a time of intense activity by our industry to provide legitimate online music services.
"We are determined to hold to account those who knowingly distribute copyrighted works on the internet without authorization. Their actions are hurting everyone in the creative chain," he said.
The case could lead to fines or imprisonment.
Oasis called fans who downloaded their latest album "thieves"
The German action comes as the music industry struggles with declining sales.
According to recent figures, sales of music around the world fell 7% last year, after a 5% dip the year before.
The music industry is blaming digital and online piracy as the most serious threat it faces.
The IFPI said in January that up to 600,000 European music industry jobs could disappear if measures against piracy were not taken.
The organisation is trying to get a cut in the rate of VAT on CDs in an attempt to boost music sales in Europe.
Recent high profile victims of music piracy include Radiohead and Madonna, whose new albums were leaked on to the internet.
Last year Oasis called fans who had downloaded copies of their album from the internet "thieves".