According to GameDaily, Epic's attempt to have Silicon Knights' case against it dismissed outright has been denied. While this hardly means SK has won the battle, it does signify that its case must be somewhat credible.
Unless you happen to be talking to Epic VP Mark Rein. From the article:
Often these requests are denied. It is important to note that this was not a decision on the merits of Silicon Knights' claims. We are confident that the evidence will show Silicon Knights breached its license with Epic Games and violated our copyrights and trade secrets.
If you're not familiar with the case, essentially SK was unhappy with the level of support and consistency of updates for its licensed version of Epic's Unreal Engine 3, which it's using for its Xbox 360 title Too Human. As a result, it whipped out its rocket-propelled lawyer cannon and opened fire on Epic in August of last year.
The verdict of this case could have significant repercussions on game engine licensing, and I get the feeling they'll be of the bad sort - regardless of the victor.