This whole thing is silly.
Palword isn't a Pokemon competitor. It's an Ark/Valheim-like on PC; it has nothing to do with the Switch, it's nothing like Pokopia or most Pokemon games. Nintendo doesn't sell PC games!
This would be akin to Skyrim being an Xbox exclusive, and BGS suing Stardew Valley for "dynamic NPCs" on the Switch version.
...Why? It's not a competitor at all; what's the business motivation?
Palworld marketing certainly leaned into the controversy, but honestly Nintendo is stupid for starting this, even from a pure business perspective.