Norwegian-born Jon Lech Johansen has found a way for rival MP3 players to download songs or shows from iTunes and for digital content from other vendors to be played on iPods, according to his San Francisco firm, DoubleTwist Ventures.
DoubleTwist managing director Monique Farantzos insisted the firm was doing nothing illegal, and said they plan to license the technology to Apple competitors "in the near future".
"What it does is it fools iTunes into thinking that whatever you're synching to your computer is an iPod," Farantzos said.
"And it fools the iPod into thinking content came from iTunes."
Apple Computer engineered iPod players and iTunes as an exclusive pairing of hardware and content, shutting out rival MP3 players and online stores.
That has attracted legal scrutiny from some countries in Europe, given the iPod's dominant market presence.
France's parliament in June passed a law that pressures Apple to open iTunes to rival digital music players, but in a concession to months of fierce lobbying by Apple, the law contains a loophole that will allow the California company to demand the right to maintain software blocks against competitors.
Other European countries - Norway, Sweden and Denmark, and possibly soon Finland - are considering legislation guaranteeing interoperability. Britain's music recording industry is thinking of a similar approach.
"This may help to take the heat off Apple in Europe," Farantzos said. "It is not necessarily a bad thing."
Lawyers consulted by DoubleTwist have advised the company that deploying the technology would be legal, according to Farantzos.
"It doesn't mean that a big company will not harass us."
"I don't think we'll be getting a Christmas card from Mr Jobs," Farantoz said, referring to Apple chief executive Steve Jobs.
Apple profits have soared with the iPod's domination of the MP3 player market. Apple claims more than 80 percent of the music download market and its iPod Nano is the most popular MP3 player in the world.
Mr Johansen "reverse engineered" Apple's security software to make the breakthrough, according to DoubleTwist.
The 22 year old, nicknamed "DVD Jon", gained notoriety in 2002 when he was accused of illegally hacking the encryption that protects DVD movies from piracy.
Mr Johansen's prosecution in Norway ended with him acquitted of all charges. The self trained engineer is now a San Francisco area programmer.
Apple recently made movies available for download to iPods from iTunes, and Microsoft promised to deliver a similarly exclusive Zune brand MP3 player and online music store to market in November.
Farantzos invited Apple to thwart DoubleTwist by opening the iPod and iTunes platform to competitors through licensing deals.