A copyright lawsuit between System Enhancement Associates (SEA) and Katz's company, PKWARE, was widely publicized in the BBS community in the late 1980s.

Katz's software business was very successful, but he struggled with social isolation and chronic alcoholism in the last years of his life.

He wrote code to run programmable logic controllers, which operated manufacturing equipment on shop floors worldwide for Allen-Bradley's customers.

Strong positive feedback and encouragement prompted Katz to release his compression program, PKARC, and eventually to make his software shareware.

He founded PKWARE, Inc. (Phil Katz Software) in 1986, with the company's operations located in his home in Glendale, Wisconsin,[2] but he remained at Graysoft until 1987.

The most substantial evidence at trial was from an independent software expert, John Navas, who was appointed by the court to compare the two programs.

He stated that PKARC was a derivative work of ARC, pointing out that comments in both programs were often identical, including spelling errors.

[6] The leaked agreement document revealed that under the settlement terms, the defendants had paid the plaintiff $22,500 for past royalty payments and $40,000 for expense reimbursements.

[7] After the lawsuit, PKWARE released one last version of its PKARC and PKXARC utilities under the new names "PKPAK" and "PKUNPAK", and from then on concentrated on developing the separate programs PKZIP and PKUNZIP, which were based on new and different file compression techniques.

However, the community largely sided with Katz, because SEA was attempting to retroactively declare the ARC file format to be closed and proprietary.

[11] On April 14, 2000, at the age of 37, Katz was found dead in a hotel room with an empty bottle of peppermint schnapps in his hand.