Asmongold TV's video on PalWorld's recent complaints (summary inside)
(www.youtube.com)
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For one, Nintendo has a history of nipping potential copyright infringements (such as romhacks or remaster/sequel projects) in the bud, so if they knew about this already, they might think this is distinct enough.
Second, and what I think people like Asmon are arguing, is that if the product is successful enough, it could hurt Nintendo's reputation to try taking it down after the fact, or it becomes increasingly expensive as the competitor gains revenue.
Success, in a way, could determine "legality."
Success also determines the potential pool for awarding damages. Attacking a suddenly big fish discourages the smaller ones, too.
Nintendo does plenty of stupid shit that pisses off a lot of people. Nintendo survives because they protect their wildly valuable IP.
Nintendo doesn't give two shits about its reputation when it comes to protecting it's IP. They will sue if they think they have a case regardless if it was the best selling game of all time.