Epic's Victory Over Silicon Knights in Video Game Dispute Affirmed

A bit of background for all of you non-gamers out there. Epic Games is the creator of the Unreal Engine (and the criminally-underrated Jazz Jackrabbit), industry-standard software used by many developers to make video games. To date, there have been three versions of the engine released, with a fourth planned for release soon.

Silicon Knights licensed Unreal Engine 3 for use in creating video games for the seventh-generation of PC hardware and consoles (Playstation 3 and Xbox 360), but was unsatisfied with the engine and Epic's support and documentation. They sued, but were slapped with a countersuit for failure to pay royalties, theft of trade secrets, copyright infringement, and breach of contract.

Epic won, and won big, with a multimillion dollar verdict. According to Kotaku, Silicon Knights was also ordered to recall and destroy every last trace of their video games which contained copyright infringing code. It was no big loss, it seems, as one commenter compared playing the company's Too Human to repeatedly smashing his own genitalia with a hammer.

And yesterday, the Fourth Circuit, in an unpublished opinion, affirmed the verdict and the injunction. The court's findings included:

• Judgment as a matter of law on Silicon Knights' fraud claim was appropriate, as even if Epic did make false representations as to the quality of its Unreal Engine 3, parol evidence can't be used to establish a warranty, especially when the written contract included disclaimers of all warranties. Forward-looking promissory representations also generally do not constitute fraud.
• Silicon Knights' copyright arguments were all ridiculous (de minimis does not apply when 20 percent of your code came from the Unreal Engine code, nor does it apply when you start development when copying and pasting the code in its entirety).
• The developer's appeal was about as flawed as its game making strategy. The unpublished opinion is littered with waived arguments due to failing to appeal alternative grounds, failing to appeal the jury's verdict, etc.
• Attorneys' fees can be issued on a judge's independent finding of willful infringement and bad faith (no jury finding is needed).

And then there was the big issue: alleged double recovery. Alas, that argument failed as well.

Epic was awarded compensatory damages under a contract theory (for the unpaid licensing fees) and disgorgement damages under a copyright theory (for the copyright-infringing code). The Copyright Act allows recovery for both the actual damages (the contract damages) and the profits of the infringer. The twin recoveries were based on independent interests and independent conduct and proof.

As for that injunction, it stands, as Silicon Knights failed to "sufficiently address this issue for appellate review by raising it only in a short footnote on the final page of its opening brief" and waiting to develop its arguments for the reply brief, a strategy that is not allowed because it deprives the other party of an opportunity to respond.

The private parts of game players everywhere are safe, as is Epic's epic verdict.

Related Resources:

• Silicon Knights v. Epic Games (Fourth Circuit - Unpublished Opinion)
• Silicon Knights unloads property, closes office, continues battle with Epic Games (Polygon)
• Guy Who Designed Ravens Logo Still Isn't Getting Paid (FindLaw's Fourth Circuit Blog)