Sadly, no matter what we do, we lose the legal battle. Let me explain.
First off, we have SOME advantages as a fangame that is VERY different from Pokemon games.
We use original assets, have composed music not from the original games, and the BIGGEST difference is the fact that is plays out like a Visual Novel, not an RPG. The reason Nintendo takes down games is because of obstruction of sales. If the game keeps their games from making money, they'll kill it to make people more inclined to buy the real ones, which is why Uranium and Prism were destroyed(Sun and Moon were coming out around the same time and they were building up hype). But there are a LOT of things that make us lose. The fact that we use all the names and likenesses of Pokemon and trainers, as well as the title, and now the Battle system and Catching system make it even worse for us. Also note that Nintendo could also just say "Welp we're suing you for copyright lol" and we'd have to give up EVEN IF we had solid evidence that it was fair use, specifically because lawyers cost money, and no one wants to go through that mess that is the American Justice System. In the end, as long as PAL doesn't mess with sales for the Pokemon games and doesn't announce a complete release date, we'll be safe from Nintendo taking us down. Will they? I wouldn't be surprised. I'm 100% certain Nintendo knows of this project in some shape or form. Do they care enough right now? Probably not. Will they in the future? Only if we obstruct business. So right now, we have to lay low and enjoy what time we have.
Your arguments about obstructions of sales make sense, however, I believe once the game is fully written there will still be a way to release it if Nintendo wants a CnD. You said :
But there are a LOT of things that make us lose. The fact that we use all the names and likenesses of Pokemon and trainers, as well as the title, and now the Battle system and Catching system make it even worse for us.
Then, by changing the name of everything refering to Pokemon, and maybe the battle system and some arts assets, the game will have "nothing" related to The Pokemon License, and will be transformed in a classic VN - since dialogues which are the core of the game are not related to the Nintendo.
It will be a shame since part of what make this game really funny and interesting came from the Pokemon aspect of the game, but I believe it could stay a great game without it.
Literally not possible in any shape or form. So much of PALs story would make NO FUCKING SENSE if it wasn't Pokemon. If they released it like a normal game THEN released a patch somewhere where it brought all the Pokemanz back, that would be sick, but thats another matter. Getting rid of any of the Pokemon Elements means the game would need a complete rework, and at that point it isn't even what people came for. Sorry, but that's the truth.