SK's lawyers say that Epic's interpretation of an "operable" engine under the license they signed is that Epic could deliver nothing in return for SK's payments, which is what they alleged happened. They also say that Epic's claim that it's in their best interest to support UE3 licensees is a fallacy because "the profits Epic assured for itself by having Gears of War as the marquee title for the Xbox 360 dwarf any gain Epic would receive from Silicon Knights purchasing a subsequent licenses for the Engine." No word yet when a judge will rule on the motion to dismiss.
It's all looking too bad for SK really. The success of BioShock and Ken Levine's own words on the matter of the UE3 show that working with a cutting-edge engine is tough, but that's the path you walk with (at the time starting development) an unproven engine. Epic may have screwed SK, but as more games come out using the UE3, it just seems to highlight SK's ineptitude to manipulate the technology like everyone else seems to have had to do.