One extra thing a lot of articles haven't pointed out is that the mod was locked behind a patreon paywall. Sticking mods behind paywalls has been a hot subject (to put it gently) in the community for a while now. Not to rush to the defense of the most profitable franchise in the world, but yeah that's absolutely gonna get you shut down.
My guess is Palworld has done their homework on how to be "legally distinct" enough. It's quite a different gameplay loop, after all and Nintendo can't copyright "cute little animals that do the manual labour for the humies" otherwise things like Digimon already wouldn't exist.
One of these days I want to see it go to court just so that the judge and jury has to discuss the legitimacy of sexualized cartoon animals, with the defence forced to keep a straight face as they try to explain why a person banging a goodra with giant jugs in a wedding dress isn't infringing copyright. Just a bunch of professional adults in a room forced to dance around the elephant in the room because it's irrelevant to the case.
Slow news day for games journalism and writers trying to justify their paychecks. Plus, I'd imagine it helps those who were running bets not on if Nintendo would crush it, but how long before they did.
And a broken clock is right twice a day. Sure this one is legit, it's still Nintendo's legal department. Just because they're right this time doesn't change anything.