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Nintendo filed a lawsuit against Pocketpair, Inc.
(www.nintendo.co.jp)
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I have a feeling that this is going to be the case. Palworld is not copying anything so it's not copyright and doesn't even need a "fair use" argument for it. The patents of gameplay mechanics don't really hold up in court.
Nintento's legal battle chest is stuff of nightmares for smaller companies and they should be countersued for anti competitive behavior.