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So nintendo and palworld are based in Japan which has no fair use on copyright.
If this became a copyright case in Japan and palworld won it could change the law on copyright fair use in, which Nintendo and other corps don’t want as it would open up new games based on their products under fair use.
The only way Nintendo can attack palworld is via patent infringement.
not every country has case law. most of Europe is eg using “code law”, which means a precedent doesn’t change the law, but only applies to the one specific case with all its specific context and circumstances taken into account. under slightly different circumstances, a judge may rule differently