Gamasutra has published an extensive analysis of the lawsuit. The main allegations against Epic involve late delivery of the latest versions of the Unreal 3.0 Engine. Silicon Knights claims that an iteration of the technology, originally promised to follow six months after the arrival of Xbox 360 development kits, arrived too late and effectively derailed its schedule and E3 2006 showing.
The Too Human developer points to Gears of War as evidence that Epic Games was withholding game-specific enhancements to the Unreal engine in order to give its own games preference. The suit notes, "Epic apparently was able to achieve a very usable 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... 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." The suit goes on to say that "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 asserts that the constant delays have prompted it to phase out the Unreal engine and switch future games to a new engine entirely. "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." The suit notes that "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."
Interestingly, Silicon Knights also licensed the PlayStation 3 variant of Epic's technology, most likely for use in its previously announced Sega project. "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."
One might venture that just such a situation may have caused Koei to abandon the PS3 version of Fatal Inertia -- despite Epic's own Unreal Tournament III gliding happily onto the PlayStation 3. It's irresponsible and impossible to draw conclusions at this point, though we'll surely hear much more about this situation in the coming weeks.