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Is it illegal to make a fan game

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It's a question that there's not really an answer to - I've heard some say yes, and I've heard some say no. I'd say that yes. But in truth, making a fan-game is a legally gray area. We don't really know. And I'd bet that few people here actually have a law degree or any law experience, so I doubt we'll find out some time soon. But it's a fun little hobby and if you want to give it a shot then go ahead.

Point is this: If you want to make a fan-game, then go for it. Nintendo could potentially shut you down, but it's so rare that something such as that will ever happen that you probably needn't worry about it. But if it does, then just comply with it and take the game down.
 
Yes, technically it is. I'll post mej's explanation from the FAQ for you.
Are fangames legal?
Technically speaking, no. If they desire, Nintendo has every right to request a Cease & Desist (C&D) from your project. If you are using Pokémon, their assets (tiles, sprites, fonts, etc), it is an infringement upon Nintendo's IP, and they can take legal action against you if you refuse.
That being said, as long as your game doesn't become to big or use completely different gameplay (like Evoas), they will probably not notice or care. Develop at your own risk.
 
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