][citation needed] In 1985, Thom Henderson of System Enhancement Associates wrote a program called ARC,[3] based on earlier programs such as ar, that not only grouped files into a single archive file but also compressed them to save disk space, a feature of great importance on early personal computers, where space was very limited and modem transmission speeds were very slow.
The source code for ARC was released by SEA in 1986 and subsequently ported to Unix and Atari ST in 1987 by Howard Chu.
Additional compression could be achieved by using Huffman coding on the LZW data, and Howard's version of ARC was the first program to demonstrate this property.
Later, Phil Katz developed his own shareware utilities, PKARC and PKXARC, to create archive files and extract their contents.
PKARC also allowed the creation of self-extracting archives, which could unpack themselves without requiring an external file extraction utility.
Following the System Enhancement Associates, Inc. vs PKWARE Inc. and Phillip W. Katz lawsuit, SEA withdrew from the shareware market and developed ARC+Plus.
[7] On August 2, 1988, the plaintiff and defendants announced a settlement of the lawsuit, which included a Confidential Cross-License Agreement under which SEA licensed PKWARE for all the ARC-compatible programs published by PKWARE during the period beginning with the first release of PKXARC in late 1985 through July 31, 1988, in return for $62,500, which at the time was an undisclosed payment amount.
[9] The leaked agreement document revealed under the settlement terms, the defendants had paid plaintiff $22,500 for past royalty payments, and $40,000 for expense reimbursements.
However, the community largely sided with Katz, due to the fact that SEA was attempting to retroactively declare the ARC file format to be closed and proprietary.
In an interview, Thom Henderson of SEA said that the main reason he dropped out of software development was because of his inability to emotionally cope with what he claimed was the hate-mail campaign launched against him by Katz.