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because it "depends on Nintendo's proprietary libraries."
At first I was a bit disappointed in Valve, but this really clarified some things. Valve is legit scared of litigation with Nintendo, which is 100% a thing I would expect any company to be scared of.
A similar thing happened with dolphin emulator when they tried to release on Steam i think
I wouldn't say it's legit scared.
More like, why? Why fight on behalf of some random person who doesn't have a history with Valve?
Why would anybody risk an extremely long drawn out and expensive lawsuit because of a nobody who has a really cool demo?
Another reminder of the age-old lesson: If you're working on a fan project that involves another company/person's IP, keep it a secret until you're ready to release it. So many cool fan projects get shut down because they get impatient and show off their work so early that they get C&D'd before they ever get a chance to come close to finishing their project.
Don't forget the other age-old lesson:
Be prepared to pivot. There's nothing stopping you from making a homage/inspired by with your own intellectual property.
So instead of being told to stop with a warning, release it and risk being actually sued for damages. Nice.
Maybe you do. Maybe you don't. It's hard to tell, since so few developers ever actually release their fan projects in the first place, so there's not a lot of noteworthy cases to draw precedent from.
But at the very least, you'll end up with a finished product under your belt. You'll have experienced the entire process of designing, developing, and releasing a video game. That's legitimate experience that you can put on your resume, even if you are sued for it. But an incomplete project that got shutdown before ever seeing the light of day is worthless to a developer who may want to pursue a future in software.
In that context, you can still show your work and would have still gained the experience. Nothing about that requires using someone else's IP, but it also isn't going to harm the IP holder like actually releasing such a project to the public would. Using copyrighted materials specifically for personal use or for school projects, both of which are never meant to be released to the public, are generally fair use. These projects were never intended to remain private.
It may not be gone for good
Naturally, there is disappointment in the comments on Lambert's Patreon post, and some users suggested Lambert might be able to move ahead with the project if he switched from Libultra, the official Nintendo 64 SDK, to libdragon, an open source SDK. Lambert said he's not sure if doing so would appease Valve, and he's reluctant to dive into it without first getting a green light from Valve.
"I would consider porting to libdragon if Valve agreed to allowing me to finish before trying to make the jump," he wrote. "It would be a lot of work and I wouldn't want to commit to it before knowing if it would actually pay off." He doesn't seem to think that's very likely to happen, though: "They also don't seem too interested in the project as I can't meaningfully distribute it on Steam."