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I don’t think taking money for making an emulator is the problem per se, and it’s unlikely it had anything to do with why Nintendo took action against them. It’s… everything else you mention. The brazen, unquestionable, open piracy, and the publicity of being able to play a game that hadn’t even been released as you say. And the DMCA in the US makes switch emulation itself a more viable legal target, because in this form it circumvents Nintendo’s encryption like the article you link points out. You can sell an NES emulator, no problem.
It… It does not “circumvent” Nintendo’s encryption. It applies a decryption algorithm to an arbitrary file with an arbitrary key
I suppose it’s true decrypting the files is not so much “circumventing” the encryption as it is… decrypting it, but I think for the purpose of the DMCA it’s the process of “circumventing” Nintendo’s attempt to keep unauthorized people from playing these games that it’s referencing. Encrypting those files is a part of their DRM scheme, so they say undoing it without their authorization violates the law. That’s my understanding of their claim, anyway, and part of the basis for their previous DMCA takedown notices to github. I don’t think this specific claim has ever been tested in court.