I think Shadow is referring to Palworld's similarities to Pokemon. There had been a lot of tension over whether or not Nintendo would try to sue the Palworld dev, so it stands to reason that selling something so contentious on Nintendo's own platform might be a bit awkward.
Nintendo is litigious yea, but there’s hundreds of emulators out there that haven’t been sued, they only sue people who do blatantly illegal stuff they can sue them for. What has palworld done that’s illegal?
Emulators are legal, so they leave the legal ones, they go after the ones perpetuating the illegal parks, like Yuzu.