Silicon Knights, Inc. v. Epic Games, Inc.

Silicon Knights, Inc. (plaintiff) entered into a license agreement with Epic Games, Inc. (Epic) (defendant) for software known as Unreal Engine 3 (UE3). Silicon Knights allegedly planned to use UE3 to develop Xbox and PlayStation video games. According to Silicon Knights, UE3 did not work as promised, and Silicon Knights was unable to meet necessary game-development deadlines. Silicon Knights also allegedly had to develop its own game engine (the SK Engine) because UE3 did not work properly. Silicon Knights sued Epic in federal court, alleging breach of contract. Epic counterclaimed for breach of contract, copyright infringement, and trade-secret misappropriation. According to Epic, Epic had allowed Silicon Knights to use UE3 for free before entering into the license agreement, and Silicon Knights had used UE3 to develop a game prototype that Silicon Knights had used to secure a contract with Microsoft. Epic further claimed that although the license agreement had given Silicon Knights the right to use UE3 only to develop one Xbox game, Silicon Knights had used UE3 to develop several other games without paying additional license fees. Epic also asserted that Silicon Knights had used Epic’s copyright-protected computer code from the UE3 to develop the SK Engine. Epic sought recovery of unpaid license fees and damages for the allegedly improper use of Epic’s trade secrets and copyrighted code. Following a trial, a jury awarded Epic $2.65 million in damages on Epic’s breach-of-contract claim and another $1.8 million on Epic’s copyright-infringement and trade-secret-misappropriation claim. Silicon Knights moved for remittitur (i.e., a reduction of the jury’s damages award), asserting that allowing Epic to recover damages for both the breach-of-contract claim and the copyright-infringement and trade-secret-misappropriation claim would be impermissible double recovery. Silicon Knights sought to limit Epic to recovery only of the breach-of-contract damages. Epic argued that the contract damages did not overlap with the copyright-infringement and trade-secret-misappropriation damages because the contract damages covered unpaid licensing fees, whereas the other damages covered Silicon Knight’s ill-gotten profits. Splitting the award in that way matched Epic’s original damages request and the trial court’s jury instructions regarding Epic’s claims and the appropriate method for calculating damages on each claim.