Silicon Knights v. Epic: The Unreal 3 Engine Case

Now that I am back, I can address the Silicon Knights case, which unfortunately came to light during my brief break. The full complaint can be found here. Due to my slightly delayed response, many sites have already published their analysis of the complaint, and most of the major issues have been addressed. I personally think Gamasutra did an excellent job breaking down the actual complaint in their article.

There are a few issues, however, that I don’t think other sites have adequately discussed.

1. If the allegations are accurate, this could result in a huge boost in licenses for id’s new id Tech 5 engine and Valve’s Half-Life 2 engine. The reality is licenses for engines sell just like any other product, and bad publicity hurts sales. While Epic may have fixed many of the Unreal 3 issues through Gears (at least in the Xbox 360 context), developers may be concerned about ongoing support for the engine, and may remain wary once Epic starts taking early orders for the seemingly inevitable Unreal 4 engine.

2. If Silicon Knights’s engine is viable, I expect others will use it as well. In fact, I could see Microsoft possibly adapting it as an answer for their developers. The Halo 3 Engine, while impressive, will likely remain unlicensed (just as the prior Halo engines have not been used by other companies). With the SK Engine, the licensing seems more like an option, especially with so many companies complaining of the high development costs for the next gen consoles.

3. While this suit may be new for the game industry, it’s relatively common in general. This is, at its core, one of the simplest contract disputes. Party A promised to deliver a good in form X, and Party B alleges that good arrived in form X-1 and Party A never fulfilled their contractual agreement. While this is a gross oversimplification, it is the core of the lawsuit.

4. While many have been quick to claim that Silicon Knights’s demand for profits from Gears is over-reaching, it is actually quite common. When a company is unjustly enriched at the expense of other companies with whom they have a contract, damages are often taken as the best estimate of the unjust enrichment. If Too Human had launched close to the same time as Gears of War, would Gears have enjoyed such phenomenal sales? Maybe, maybe not. Was there a defined benefit in both publicity and sales for Gears as a result of having little competition? Almost certainly. Would Too Human have been competition? Most likely. Could the market then have supported full sales of both games? More likely then than now since fewer games were available for the Xbox 360. These are the kinds of questions that go into an analysis of unjust enrichment damages. Assuming Silicon Knights can show that Epic neglected the licensees in order to work on Gears, the Gears profits will become some measure of damages. While it seems unlikely Silicon will receive all of the profits they demanded, a substantial award for Silicon would not be out of the ordinary.

Those are just four comments on the case. It will be fascinating to see what results in the court, or the pre-trial settlement.