I mean, the problematic part here is that they take the model in the first place, or at least that all signs point to that being the case. Sure, you can coldsteel the hell out of an existing character, but if you're using an asset you didn't develop and didn't license to make a product that you then sell for money, no matter how different the end result looks from the original, that is absolutely infringement. It's infringement that might have gone unnoticed had the models been more sufficiently edited, but at the end of the day it's the theft of someone else's labor.

I don't know if that's what happened here, but when the industry professionals say it's hard to get model proportions that close even moving the same asset into a different engine, and the whole roster is uncannily similar? If it looks like a duck...