Brendan Sinclair over at Gamespot does a good job laying out the very intricate plot of this future courtroom drama -- although it'll probably all be settled out of court, just like the last round of Activision v. The Ant Commandos. The over-simplified version of it is that some of the major people behind Guitar Hero II left Red Octane and began their own company, teaming up with The Ant Commandos. Of course, this means that these people leave with all the intimate knowledge that made Guitar Hero a success, making Activision's $100 million purchase lose some value. Harmonix was the soul, but Red Octane was the brain of Guitar Hero ... and some major functions of the brain just left for another body. Not just any body either, but the direct competitor.
This situation is almost as strange as Marvel waging superhero wars with Cryptic Studios over City of Heroes and then offering the company the chance to create the Marvel MMO. At the moment, everyone involved in the Activision super-terrific-happy-lawyer-overtime-case is keeping their mouth shut.