1UP has allegedly found evidence of wholly owned Sony subsidiary Koyeo actively encouraging its employees to defame Microsoft's Xbox 360 by spreading malicious rumours about faulty/overheating units.

According to 1UP, "Project Light Flame" has seen Koyeo pay its third party employees to actually incite defamatory views about the console. While it was fair to expect certain hardcore Sony fans to engage in similar activity, if proven to be true Sony may find itself at the centre of an extremely damaging legal battle before its console is even launched.

With the launch of the PS3 looking like slipping further and further back, Sony can be expected to step up its anti-Xbox 360 marketing, however illegal tactics such as this shock even us hardened journalists.

Neither Sony nor Microsoft were available for comment at the time of writing.