Silicon Knights' Lawsuit Against Epic Gets Trial

The battle between developers Silicon Knights (SK) and Epic Games is about to reach epic proportions, as the legal dispute between the two parties over SK's Too Human game and the state of Epic's licensed Unreal Engine 3 (UE3) back in 2007 will finally be appearing before a jury thanks to a recent court order.

Previously Ontario-based Silicon Knights alleged that Epic Games, based in Raleigh, North Carolina, violated the UE3 licensing agreement by failing to provide a working game engine. Initially development on Too Human began on incomplete versions of UE3 in May 2005 with a promised stable version to arrive no later than six months after the Xbox 360 SDK was finalized. But in May 2006, two months after the deadline, SK still didn't receive what it considered as a working copy.

So rather than lose funding from Microsoft due to UE3-based delays, SK moved forward and created its own engine for Too Human. The developer then filed a lawsuit against Epic in 2007, accusing Epic of fraud, negligent misrepresentation, unfair competition, breach of contract, and breach of warranty.

In court papers uncovered this week, SK claims that Epic was "sabotaging" Unreal Engine 3 licensees by withholding an improved version of the engine while using the licensing income to fund its Gears of War franchise. The papers even reveal emails stating that-- rather than providing a team to focus on getting the engine up to working order and another separately working on the Gears of War and Unreal Tournament 3 projects-- all Epic programmers were to primarily focus on the games instead, ignoring its legal obligations to licensees.

"Epic's witnesses confirmed that at the time the License Agreement was in place, it never had any employees dedicated solely to servicing licensees and that, instead, every programmer on the engine team also had licensee support as a job function," court documents state. "This is, of course, in contrast to the alleged representations by Epic that its programmers would be divided between those dedicated to engine development and support, and those dedicated to development of Epic's own games. Indeed, SK cites to internal emails from Epic's officers instructing programmers that ‘Gears [of War] comes first, so if you have any Gears tasks, drop work in the main branch and finish Gears tasks' and that ‘Right now, we are very much in will this help Gears ship faster? If not, punt mode.'"

Although a federal court sided with Silicon Knights and has given a green light for a jury trial, the court dismissed some of the developer's claims, stating that "genuine issues of material fact exist" in regards to allegations of intentional interference, unjust enrichment and other accusations.

The problem for Epic is that SK may not be the only party involved in the jury trial. Disney's Buena Vista Games filed similar claims against the Gears of War developer back in 2006. The court documents state that Disney's certified letter "demonstrated that other [Unreal Engine] licensees expressed many of the very same frustrations that [Silicon Knights] did about representations made by Epic that were unfulfilled and perceived to be misleading."

"Evidence regarding the basic nature of the parties' businesses and the relationship between them establishes that Epic had a possible motive to deceive SK into entering into the License Agreement in order to fund the development costs of its own games and delay the work of SK and other competing licensees on their video games," the court states. "There is also Epic's admission in its counterclaim that it developed the [Unreal Engine 3] in conjunction with the development of its own game as part of its ‘synergistic model' and not separately as it had led SK to believe."

This is going to get nasty.