His first compression product was released in the mid-1980s with a program called PKARC. PKARC was compatible with the then-popular ARC program written by Thom Henderson, founder of SEA System Enhancement Associates. ARC was written in C, with the source code available on SEA's BBS. PKARC, written partially in assembly language, was much faster (back then, compilers were not as good at optimization as they are today). Katz had a special flair for optimizing code. Besides writing critical code in assembly language, he would write C code to perform the same task in several different ways and then examine the compiler output to see which produced the most efficient assembly code. PKARC's speed quickly made it more popular than the earlier program.
He initially released only PKXARC, an extraction program, as freeware. Its much greater speed caused it to spread very quickly throughout the BBS community. Strong positive feedback and encouragement from the community caused Katz to first add a compression program, PKARC, and then to make his software shareware.
PKARC, in addition to duplicating the compression techniques used in ARC, added an additional algorithm which produced smaller files. However, these files still used the file extension ".ARC". This led to the situation where files which appeared to be created by SEA's ARC could not be read by that program. System Enhancement Associates's Henderson considered this an appropriation of his product's trademarked name, and sued Katz. Katz withdrew PKARC from the market and instead released PKPAK, which was similar in all but name and the file extension used.
System Enhancement Associates soon discovered that Katz had copied significant amounts of the copyrighted source code distributed with ARC. They sued for trademark violation and copyright infringement. SEA and Katz settled, with Katz agreeing to change the program.According to expert witnesses hired by SEA, Katz had copied ARC's source code so extensively that even identical comments and spelling errors were found. The BBS community, arguably due to prompting from Katz, took the suit as an example of a large, faceless corporation crushing the little-guy — even though both companies were family businesses with fewer than 5 or so people. SEA's founder, Thom Henderson, has said that users who spoke to him at the time "didn't care" if PKARC misappropriated his copyrights and trademark; they just wanted to use the fastest software to compress and uncompress files.
PKZIP made Katz one of the most well known shareware authors of all time. Although his company PKWARE became a multimillion dollar company, Katz was more noted for his technical expertise than expertise in running a company. His family assisted him in running the company, but he eventually fired them when they denied him access to the company's profits.
Katz was adamantly opposed to Microsoft Windows in the early 90s. This led to PKWARE missing out on the opportunity to be the first to bring PKZIP to the platform.