The music industry faces a new challenge, this time from a Dutch software firm called PGR, reports the Wall Street Journal.

With a background in the Dutch construction industry, PGR is preparing to exploit a loophole in Dutch law created last March when a local court ruled that ISPs and peer-to-peer file sharing services could not be held responsible for user's copyright infringements, as they were not in control of user actions.

PGR is preparing to go into business providing peer-to-peer services, as well as offering software, legal advice and other help to those who want to start up new services. Such services would be based in the Netherlands, where they would be protected by the court's decision.

Music-industry representatives aren't happy with the move. "We intend to enforce our rights not just in the US, but world-wide," said Carys Sherman, president of the Recording Industry Association of America.

US record labels are successfully winning in litigation against peer-to-peer file sharing services in the US, and are now extending their fight against individual users. In the Netherlands, local-music-industry representatives are appealing against the Dutch court's decision, but the result of that appeal won't be announced until the fourth quarter.

Record labels have complained that digital distribution is costing them millions in lost sales. Internationally, the labels are deeply engaged in a bitter battle to protect copyright, including developing copy protection on CDs, though some customers complain such systems challenge the rights of consumers 'fair-use'.

The debate also extends to other forms of media, such as movies. Apple's chosen multimedia standard, MPEG-4 is itself about to be boosted with copy-protection features. If such features are not introduced, MPEG-4 has every chance of failing in the marketplace, reports claim.

Real Networks CEO Rob Glaser last week suggested the entertainment industry should offer a compelling legal alternative to file-sharing services in order to defeat piracy.

"If you just shut services down, like shutting down Napster, others will pop up unless you offer a commercial alternative," he said.

Last week Macworld reported that a group of music publishers are engaged in legal action against German media company Bertelsmann. They want $17 billion from the company, which also owns big five record label BMG.