The code that prevents music downloaded from Apple's iTunes store being played on any portable player other than an iPod has been "cracked".
Music downloaded from iTunes can only be played on an iPod
Apple has not commented on claims that Jon Lech Johansen has "reverse engineered" the FairPlay system.
Prominent hacker Mr Johansen has made a name circumventing software used to restrict the use of digital media.
His company, DoubleTwist, said that it planned to license the code to other digital music player manufacturers.
"There's a certain amount of trouble that Apple can give us, but not enough to stop this," Monique Farantzos, managing director at DoubleTwist told Associated Press.
"We believe we're on good legal ground, and our attorneys have given us the green light on this."
Mr Johansen first distributed a program to bypass the Apple system, called QTFairUse, in 2003.
Since then several versions of the program have been distributed to keep up to date with new versions of iTunes and FairPlay.
These were distributed on the web for free but were difficult to use without technical know-how.
Now, Mr Johansen and DoubleTwist plan to commercialise the technology.
At the moment iTunes controls 88% of the legal music download market, while 60% of those possessing a portable music player own an iPod.
All music sold through iTunes uses the FairPlay system that restricts the use of the downloads. Purchased music can only be moved between five computers and played on an Apple iPod.
Downloads cannot be transferred to players made by other manufacturers, such as Creative or Sony.
The new "workaround" could help companies like these sell iTunes compatible products that could start to scratch away at the iPod's dominance.
Mr Johansen, also known as DVD Jon, rose to fame at the age of 15 when he wrote and distributed a program called DeCSS that cracked the encryption codes on DVDs.
The free program, posted on the web, was written by Mr Johansen so that he could play his DVDs on a Linux-based computer. Following complaints by the film industry, Norwegian authorities charged Mr Johansen, but he was later acquitted.
The courts ruled that he had a right to decode the DVD.