I have heard that one of the reasons that they C&D innovative, good projects like this is because in copyright law, they can lose their status with said copyright if they do not defend it when being infringed upon. Probably haven't translated that very well from legal terms into human terms, but I blame flawed copyright laws. I still put blame into WB for having to be so evil as to C&Ding a project that does not make any profits.
This could be minorly beneficial to WB. For exampe, Skyrim customer loves Skyrim, but doesn't know much about Lotr. Said Skyrim customer sees this huge Lotr mod and tries it out. This customer has now been introduced to Lotr through an entirely different means of advertisement. Especially because MERP is a completely non-profit project. I don't see what WB gains by the C&D.
The lengths that all of these large corporations go to sue the little guys in fear of a .0001% drop in profits really grinds my gears.
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