The Swede behind the world's most popular song-swapping software is at it again.

Niklas Zennstrom, who co-founded Kazaa B.V., the company that created the program of choice for sharing songs and videos online, now is offering Internet service providers PeerCache -- software that lets the ISP's users download commonly shared files from the ISP itself, rather than over the Internet from another user's hard drive.

The recording industry is taking note. The International Federation of the Phonographic Industry, a trade group, is investigating whether to sue Joltid Ltd., maker of PeerCache, or ISPs that use it.

Legal experts say Zennstrom's new product poses a fresh threat for the music industry, which already blames Kazaa and similar programs for its sharp drop in sales in recent years.

Sony Corp. estimates that file-sharing cost music companies $7 billion in sales over the past two years. Two weeks ago, Vivendi Universal S.A.'s Universal Music Group slashed wholesale compact-disc prices some 30 percent to try to lure buyers back.

And last week, the U.S. recording industry sued 261 individuals that it claims illegally share large numbers of music files online, an attempt to strongly deter the dissemination of copyrighted materials via file-sharing services.

"PeerCache is going to reduce the cost of file sharing to Internet service providers, which means the ISPs will have less incentive to cut down on the file sharing," said Ben Edelman, a fellow at Harvard Law School's Berkman Center for Internet and Society. "And it increases the speed for the users, which means they will just do it more."

Zennstrom counters that he has three paying Internet-provider customers, including Wanadoo Netherlands, a unit of France Telecom S.A. He will not, however, name the other two or say how much the ISPs paid for the service.

He said he has not yet approached any U.S. ISPs. However, a spokesman for America Online Inc., a unit of AOL Time Warner Inc. based in Dulles, Va., said the company has looked at the PeerCache technology and decided not to deploy it.

Microsoft Corp., based in Redmond, Wash., wouldn't comment on whether it is considering using Kazaa technology for its MSN service.

Bracing for a fight

It would seem that Zennstrom would be wary of taking on Big Music. The industry sued him last year, brandishing threats of criminal prosecution and millions of dollars in fines. He sold the Kazaa software and Web site in 2002 as his company's legal bills exceeded $100,000 a month.

Despite Kazaa's popularity, Zennstrom never struck it rich. He barely recouped the money, some $220,000, he put up to finance the company -- and he still rides a bicycle to work.

But he is bracing for another fight.

"Basically, what the [music industry] should do is outlaw the Internet," he said. "That's what they want to do."

Napster silenced

Zennstrom, 37, said he doesn't download music; he buys compact discs. He spent the 1990s working for Internet and telecom affiliates of Sweden's Industriforvaltnings AB Kinnevik and a European telecom consortium.

He and a partner, Janus Friis, decided to create Kazaa in April 2000, after seeing how traditional Internet file distribution -- using centralized computer servers -- strained networks. To write the software, Zennstrom hired a trio of whiz kids in Estonia who answered an online ad.

As they were gearing up to launch Kazaa, a U.S. judge ruled that Napster Inc. had to stop illegal music sharing, a ruling that contributed to the eventual shutdown of that service.