Epic Games of Cary is accused of sabotaging the development and release of a Canadian rival's video games to promote its own hit title, according to a lawsuit filed in federal court.

Video-game developer Silicon Knights of Ontario, Canada, claims that Epic, through a licensing agreement, sold flawed software, failed to fix it and used fees from the sale to introduce its own games "to widespread commercial success."

Epic's violent game for the Microsoft Xbox 360, "Gears of War," has been a big hit with critics and sold millions of copies worldwide. Epic is developing a PC version, and it recently announced that a movie adaptation is in the works.

But the suit, filed last week in U.S. District Court in Greenville, alleges that that success came at the expense of Silicon Knights.

Epic's primary product is "Unreal Engine 3," software that programmers use to create video games. Silicon Knights licensed the engine from Epic in 2005 to develop a game in time for an important industry conference.

But "Epic violated the agreement with Silicon Knights by ... failing to provide a working game engine," the suit contends. "Epic chose to prioritize its own products, using the revenue from the sale of the engine licenses to unsuspecting developers like Silicon Knights."

As a result, Silicon's release of "Too Human" was poorly received at the E3 video-game conference last year, while "Gears of War" stole the show, the suit says.

"Too Human" is a 3-D action-adventure game rooted in Norse mythology. "Gears of War" is a post-apocalyptic adventure in which players take the identity of warlord characters.

"Our strong preference is to focus on making games, not be in court," Silicon president and founder Denis Dyack said in a statement. "Unfortunately ... for more than a year, we have been trying to reach an agreement with Epic to resolve these issues without resorting to litigation, but were unable to come to reasonable terms."

Epic's vice president, Mark Rein, denied the allegations when reached by phone in London on Tuesday, but he declined to comment specifically. He referred to a prepared statement from Epic Games: "We believe the claims against us are unfounded and without merit and we intend to fully defend against them."

In addition to damages, Silicon Knights is seeking to terminate all obligations to Epic and "disgorge" it of all profits attained through its alleged misconduct with Silicon.

Silicon Knights officials and their attorneys at Raleigh law firm Kilpatrick Stockton could not be reached for comment Tuesday.

The suit alleges that Epic deceived other game developers but does not identify any companies.

Other problems seen

Dan Hsu, editor of San Francisco-based Electronic Gaming Monthly, said other companies have had trouble with Epic's game engine and even cancelled projects. But it's too early to assess the veracity of Silicon's claims, he said.

More than 100 developers have licensed Epic's engine software in recent years, including for big-budget titles such as "Stranglehold" and "Mass Effect."

Now Epic is earning attention for its own games, including "Gears of War."

A PC version is due to be released in November; the soundtrack is expected July 31. Industry analysts have said they expect a sequel.

Rein recently said the company is expanding beyond its 90-person headquarters in Cary and could soon need more office space. The company's Web site lists dozens of job postings.