Breaking: Silicon Knights Files Lawsuit Against Epic

According to a statement from Epic's Mark Rein sent to leading news outlets including Gamasutra, the Unreal Engine 3 creator is the subject of a lawsuit from licensee Silicon Knights regarding UE3-utilizing Xbox 360 title Too Human. Rein's statement, sent out to the media this afternoon, reads as follows: "This morning we were served with a lawsuit by Silicon Knights. We believe the claims against us are unfounded and without merit and we intend to fully defend against them." The Epic VP continues: "We'd love to tell you more about it but unfortunately our lawyers want us to save our comments for the courthouse so we're going to do our best to comply with their wishes." He concludes: "In that vein we'd appreciate if our friends in the industry and media would refrain from asking us about the suit because we're only going to say "no comment". We just wanted to share the news directly before the rumor mill starts churning." Representatives from Silicon Knights were not immediately available for comment, but Gamasutra will update this story when more information about the contents of the lawsuit are made available. [UPDATE: Gamasutra has now obtained a copy of the lawsuit, which was filed in North Carolina district court and demands a jury trial on the grounds of breach of contract regarding Unreal Engine 3 licensing. The Main Allegations The suit initially alleges that: "Rather than provide support to Silicon Knights and Epic’s other many licensees of the Engine, Epic intentionally and wrongfully has used the fees from those licenses to launch its own game to widespread commercial success while simultaneously sabotaging efforts by Silicon Knights and others to develop their own video games." It goes on to detail a number of specific alleged breaches of contract, particularly related to the delivery of Xbox 360 versions of the Unreal Engine 3 code. Epic's licensing document stated that a functional version of the engine would be available within 6 months of development kits being available. Silicon Knights claims: "The final development kit for the Xbox 360 was released in early September, 2005, such that Epic was obligated to release the functional Engine for that platform no later than March, 2006." The suit continues: "However, that deadline came and went without Epic providing Silicon Knights with a functional version of the Engine. Indeed, it was not until much later (November, 2006, far too late for time and cost-sensitive projects like SK’s videogames) that Epic ever provided anything resembling working Xbox 360 code to its licensees. Even at that belated date, though, Epic did not provide any guidance to licensees in how to implement the code it finally released." Epic's Own Games Taking Priority? Another area of concentration is Epic's simultaneous development of its own titles alongside engine development. The lawsuit charges: "In particular, at the same time that Epic was supposed to be supporting its many licenses to the Engine (Silicon Knights’ among them) Epic was also racing to complete and market its own games: “Unreal Tournament 2007” and “Gears of War."" It goes on to explain: "The support Epic had misrepresented it would provide Silicon Knights... became increasingly inconsistent as both Silicon Knights and Epic progressed toward the target launch date for their respective games. Epic has attempted to avoid its obligations under the Agreement by representing to Silicon Knights that the support, modifications, or enhancements to the Engine – all of which are essential to the Engine’s proper function – were “game specific” and not “engine level” adaptations, and that Epic therefore need not provide them to any of its licensees, including Silicon Knights." It's claimed: "That representation is false, as evidenced in part by the fact that Epic later provided nearly all the Gears of War code to all of its licensees, at no extra charge, in a belated effort at damage control." Silicon Knights Now Making Own Engine Further on in the document, it's implied that Silicon Knights is pursuing alternatives to Unreal Engine 3, despite showing multiple versions of Too Human using the engine. It's explained: "Epic’s actions and the consequent increasing delay and cost of development of Silicon Knights’ own game caused by the unworkable Engine forced Silicon Knights in May of 2006 to embark on the time and resource intensive task of writing its own game engine, the very task it had hoped to avoid be entering the Agreement with Epic." Later on in the suit, its added: "Silicon Knights was forced to decide whether to continue waiting for Epic to provide it with a commercially functional version of the Engine. Under the Agreement, Silicon Knights found itself in the position of being ostensibly “bound” to use Epic’s non-functional product, even though doing so would result in the breach of its obligations to its publishing partners. Rather than let that happen, in May of 2006, with the Engine two months overdue and under the looming risk of funding for Too Human drying up if no workable engine could be found, Silicon Knights had no choice but to abandon the Engine and begin creating its own game engine (“the Silicon Knights Engine”). By that time, Epic had shown neither the ability nor the intent to fulfill its obligations under the Agreement." It's also revealed: "Progress on the Silicon Knights’ Engine continues to date and, at this time, the Silicon Knights Engine is completely independent of Epic’s Engine and certainly derives no benefit from the unworkable source code provided by Epic." "In fact, at this juncture the Silicon Knights Engine should, at a minimum, be described under the Agreement as an “Enhancement” of Epic’s Engine, which, as defined by the Agreement, is technology developed by Silicon Knights that improves upon the Engine and is therefore the property of Silicon Knights. Moreover, as development of the Silicon Knights Engine continues, the amount of code from Epic’s Engine employed by Silicon Knights continues to decrease. After the release of Silicon Knights’ Too Human, all Epic code will be removed from the Silicon Knights Engine." E3 2006 Issues Documented A key point of contention is the E3 demo of Too Human, which was not well received - the suit alleges: "The final development kit for the Xbox 360 was released by Microsoft in early September, 2005, meaning that Epic was obligated to deliver a fully operable version of the Engine to Silicon Knights by no later than March, 2006." "That delivery date is significant, since compliance by Epic would have given Silicon Knights time to prepare an appropriate demonstration version of its Microsoft Xbox 360 game, Too Human, for the very important industry trade show, E3, two months later in May, 2006." It continues: "Epic apparently was able to achieve a very useable version of the Engine for the Xbox 360 – the version that it kept to itself, for use only on its Gears of War game (as discussed below), to the detriment of Silicon Knights and Epic’s other licensees, as set forth in more detail below. Epic’s plan to avoid its obligations and hoard all of the necessary functionalities not only harmed Silicon Knights and all of Epic’s other licensees in the industry, but also gave Epic a clearly unfair advantage in the industry." How so? "That advantage was nowhere more evident than at E3 2006, where Gears of War was awarded “Best Game in Show” and garnered nothing but laudatory press. By contrast, Silicon Knights – one of the only other [Unreal Engine 3] developers to publicly display a playable demonstration of its game – saw Too Human roundly criticized in the videogame press for its technical problems and generally unpolished appearance. The damage to Silicon Knights caused by Epic’s misconduct was manifest, because E3 attendees were able to compare Too Human with another game running ostensibly the same game engine, Gears of War, with vastly superior results."] Other Developers Also Allegedly Affected The suit also charges: "Upon information and belief other game developers have been faced with a similar dilemma as Silicon Knights." It continues: "To the extent that Epic contends any such third party developers purportedly were able to utilize the Engine during the early development cycle (when Epic had warranted Silicon Knights would have a functional engine but failed to deliver one), upon information and belief those third party developers broke away from the unworkable code that Epic had delivered and created their own distinct engines, just as Silicon Knights was forced to do." PS3 Engine Also Involved? Separately to the high-profile Too Human, which is Xbox 360 exclusive, Silicon Knights had licensed the engine for the PlayStation 3 and PC as well. Though other games are not prominently mentioned in the suit, so it's unclear which game this is referring to, Sega signed a deal with Silicon Knights in 2005 for an unspecified next-generation title, and it's noted in the charges: "More recently, Epic has breached its Agreement with Silicon Knights yet again by missing the six-month deadline for release of an Engine that works on the Playstation 3. Final development kits for that console were released in and around mid-August, 2006, making the functional Engine due to Silicon Knights in February, 2007. Silicon Knights has received no such Engine from Epic." Silicon Knights' Allegations, Desired Results? The final part of the lawsuit describes the specific charges Silicon Knight is making, including Fraud/Fraudulent Inducement, Negligent Misrepresentation, Intentional Interference with Contractual Relations, Intentional Interference With Prospective Economic Advantage, Breach of Warranty, offences under the North Carolina Unfair and Deceptive Trade Practices Act, Common Law Unfair Competition, Unjust Enrichment, Rescission or Reformation of Alleged Contract, and Breach of Contract, as well as Declaratory Relief. It then asks for the following to be ruled: "(1) the Agreement between Epic and Silicon Knights for a license to the Engine is null and void; (2) Silicon Knights owes no obligations to Epic under any purported agreement by Silicon Knights to license the Engine; (3) Silicon Knights is not required to use the Engine in developing any current or future games; (4) Silicon Knights may alter the Engine without restriction; (5) Silicon Knights is under no obligation to disclose or share any alterations Silicon Knights makes or causes to be made to the Engine with anyone, including Epic." It continues: "(6) Silicon Knights owes no monetary or other obligations to Epic and/or any of its business partners associated with the agreement to license the Engine; (7) the game engine developed by Silicon Knights is totally independent of the Unreal Engine 3 and therefore is the sole property of Silicon Knights, or, alternatively, the game engine developed by Silicon Knights constitutes an “Enhancement” under the terms of the Agreement, and therefore is the sole property of Silicon Knights under the terms of that Agreement; and (8) Silicon Knights owes no obligations, financial or otherwise, to Epic in connection with and/or related to the Silicon Knights Engine." The document then asks that "The Court award damages to Silicon Knights in an amount proved at trial for the damages as set forth above", and that "Epic be required to disgorge all profits obtained on its Gears of War game as a result of the misconduct set forth above." Microsoft, Silicon Knights' Reactions Silicon Knights' Denis Dyack, when reached for comment by industry site GameDaily BIZ, noted: "We stand behind everything in our complaint and believe it is highly unfortunate that Epic forced us into this situation. We would rather spend our time focusing on making great games, but as stated in our complaint, Epic simply refuses to acknowledge the inadequacies of the Unreal Engine 3 code it provides to its licensees, and refuses to accept the fact that its code has caused serious damage not only to Silicon Knights, but a number of other developers in the industry. We look forward to successful resolution of our claims in this court proceeding." A statement subsequently released to Gamasutra by Silicon Knights added: "Denis Dyack, President and Founder of Silicon Knights, explained, “Our strong preference is to focus on making games, not be in court. Unfortunately though, as explained in our lawsuit, we have had extensive problems with the Unreal Engine 3 that Epic has been unwilling or unable to rectify. For more than a year, we have been trying to reach an agreement with Epic to resolve these issues without resorting to litigation, but were unable to come to reasonable terms with Epic. Regrettably, we are now forced to go to court in order to achieve satisfaction. We remain hopeful, however, that we can reach a reasonable business resolution with Epic at some point.”" Gamasutra also received an official statement from Microsoft regarding the lawsuit, which occurs between two of the major developers that are currently publishing games via the firm. However, it simply states: "Microsoft is not involved in or a party to this litigation, therefore has no comment."]