Yeah, Hotpink's excuses for "We didn't INTEND the copyright warning as a threat" completely contradicts the language of their report:
It's killing the competition because they got so badly outclassed on a TL sequel.
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The original Tentacle Locker received over a million downloads, and Lovecraft Locker is a first-time project by a fledgling studio without name recognition. Even without insight in to the inner workings of Hotpink, it's very obvious their motivation had nothing to do with feeling threatened by competition.
Also, given that Hotpink basically held all of the cards, it would have been exceptionally easy for them to shut down the smaller project or even the Strange Girl studio entirely, since even the threat of a lawsuit would have shut down a smaller studio that lacks the money to hire a legal team (seriously, legal threats kill small projects all the time without anything even needing to enter the courtroom). Blowback would have been negligible, since the vast majority of TL fans found it through other websites and really don't have any clue what LL is at the moment.
So we can tell that their intent wasn't to kill competition... because they didn't. I can't stress enough how effortless it would have been to do that if they actually wanted to.
You're making the same mistake Hotpink did, which is thinking SG is some random "fledgling studio". There's plenty of aspects to compare, but start with their Patreon accounts. Hotpint currently has almost 700 patrons that they gathered for the past 3-4 years. SG now already has more than 800 patrons that grew in just a month.
Sure, HP could've done better for themselves if they didn't act harshly. But how HP behaved is who they are, there's no changing that. HP knows the potential of SG in the "tentacle locker" competition. So they got greedy and tried to absorb them and get an easy cash cow.
You're basically just throwing random stuff now here. LL is "the smaller project"? "Shut down Strange Girl studio entirely"? "exceptionally easy"? Their growth tells everything. "I can't stress enough how effortless it would have been to do that if they actually wanted to." Lol, just look at their itch complaint report, it's not effortless. It's more like desperate.
Your first argument works against you - yeah, TL has a lot of downloads, which would make it all the more "threatening" for a rookie team to come in out of the blue with a first-time game that blows the "original" out of the water in pretty much every category. HPG has a rep as "the Tentacle Locker guys;" for another circle to come on the scene with a better attempt at their flagship title is a sucker punch to the ego. Their claim even lays it out in plain English: "This is hurting our IP." If they a no-name, up-and-coming studio couldn't be a threat, then why were they concerned, period?
As to holding the cards - did they? What license are TL and TL2 distributed under that was violated? Creating something doesn't automatically give you the right to any and all future content that is derived from or remotely similar - especially when it comes to game design and mechanics, as HPG claims (those are covered by patents, not copyright). You're right that the threat of legal action can shut a circle down instantly, but that cuts both ways - it's just as expensive to initiate action, and there's no profit in copyright busting in itself (the profit comes from defending market share).
You're right, blowback will be negligible - which is exactly why they can get away with being bullies. So why bother with any of this? Because bandwagoning - TL2 is an asset swap for TL, whereas LL came out the gate swinging with a better mechanical framework. Why shut that down when you can coopt it?
I didn't actually know that about their patreons! interesting. Anyway, I also don't believe that hotpink would have a legal claim to shut down LL, because there's actually not very much you have to do to distinguish an IP before you're no longer legally liable. my point was more, as you stated, they wouldn't even need to. a legal threat is all that's needed, because even the prospect of defending oneself in court can become prohibitively expensive. One studio would have the built-up cash reserves to initiate or defend in a court case, the other would not.
To be clear, I don't believe this drama happened for no reason. I do believe this was a matter of ego, and that frequent fan comparisons between the project in their comment section just served to needle them. But there's a big difference between ego damage and annoyance and actually feeling threatened. That being said, the information about the studio patreons does actually shine a different light about their comparative monthly incomes, so you're actually right about that claim claim of threat holding water.
Also, though this doesn't effect your argument being right overall, I find your claim that "hotpink having a million downloads should make them feel more threatened of competition" is very silly. Though I still don't personally believe this was a move made out of economic greed, a better argument in your favor might be "by their own admission, TL's explosion in downloads is largely due to ticktock and twitter, audiences who are comparatively less loyal and much less likely to spend money then audiences on itch.io. people on tiktok have no idea what Lovecraft Locker is, but they're not the ones who vote with their wallets."
edit: oh, you weren't actually the commenter who pointed out their patreons. w/e, the point still stands that it's valid