I read an alternate account of that case years later, which changed my opinion a bit. It appears that Seasoft had made source code available for arc, so that it could easily be ported to other platforms (although it was still under a shareware type license). They also had as a requirement that if you modified it such that it made arc files that were incompatible with SEA's arc, that you had to send those modifications to them so that it wouldn't fragment the file format. Now apparently PKarc was based off of the available SEA source, and it made incompatible (embrace, extend) versions of ARC. So those two points were what the lawsuit was about, both the code reuse, and making a product claiming to be ARC but with incompatible file formats. Which is why SEA won.
Now here's the kicker. Both sides were under a gag order while the case was pending. However, a one-sided version of the case was leaked (possibly by a PK employee), which made it look like SEA was being the bad guy. And they couldn't respond, due to the gag order. And this happened about the same time as the various Look and Feel lawsuits (Lotus 123 vs. Paperback Software, , Apple vs. Microsoft, and a couple others I can't recall). So of course PK got the sympathy of the BBS community. The first thing PK did was change the extension to "pac" and the name of the program to "pkpak". Then he made a new format "zip", and the BBS community converted overnight. By the time SEA was able to tell their side of the story, it was too late.
Of course, it's been a number of years since I read that account, and even longer since the original events, so most of it is paraphrased. But if needed, I can probably dig up the magazine articles that had the details.