You cannot prevent a person from making a living, the same applies to companies I would suppose.
If CIG can demonstrate that the CryEngine was too flawed to continue development with, they might have a chance...
According to Derek, CryEngine was capable of producing the original game (as per KS ).
It was only when the scope ballooned and additional promises made that SC became impossible to achieve using CE (and possibly any other engine).
So the question is - 'Why was the scope allowed to balloon beyond the capabilities of CE?' Who authorised this?
You can't prohibit someone from making a living. That is true. But you can prohibit HOW someone makes a living, especially when that restriction forms part of a contract.