A compression algorithm based on Huffman coding is disclosed that is adapted to be readily implemented using VLSI design. A data file may be processed to replace duplicate data with a copy commands including an offset and length, such as according to the LV algorithm. A Huffman code may then be generated for parts of the file. The Huffman code may be generated according to a novel method that generates Huffman code lengths for literals in a data file without first sorting the literal statistics. The Huffman code lengths may be constrained to be no longer than a maximum length and the Huffman code may be modified to provide an acceptable overflow probability and be in canonical order. Literals, offsets, and lengths may be separately encoded. The different values for these data sets may be assigned to a limited number of bins for purpose of generating usage statistics used for generating Huffman codes.