GameDaily BIZ reports that Silicon Knights is suing Epic Games over "inadequacies of the Unreal Engine 3 code it provides to its licensees." They have quotes from Silicon Knights president Denis Dyack and Games' Vice President Mark Rein. First was a preemptive message from Epic's Rein:

This morning we were served with a lawsuit by Silicon Knights. We believe the claims against us are unfounded and without merit and we intend to fully defend against them. We'd love to tell you more about it but unfortunately our lawyers want us to save our comments for the courthouse so we're going to do our best to comply with their wishes. In that vein we'd appreciate if our friends in the industry and media would refrain from asking us about the suit because we're only going to say 'no comment.' We just wanted to share the news directly before the rumor mill starts churning.

Prompting a prequel response from Dyack:

We stand behind everything in our complaint and believe it is highly unfortunate that Epic forced us into this situation. We would rather spend our time focusing on making great games, but as stated in our complaint, Epic simply refuses to acknowledge the inadequacies of the Unreal Engine 3 code it provides to its licensees, and refuses to accept the fact that its code has caused serious damage not only to Silicon Knights, but a number of other developers in the industry. We look forward to successful resolution of our claims in this court proceeding.