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Valve then forwarded us the statement from Nintendo's lawyers, and told us that we had to come to an agreement with Nintendo in order to release on Steam.
We all know Nintendo is a bitch and there's nothing illegal in emulators, but Valve's stance looks reasonable to me, it would be serious damage to Steam if they were involved in ~~legal~~ litigation.
Yep, I can understand that they don't want to fight someone else's fight.
We have a very strong argument that Dolphin is not primarily designed or produced for the purpose of circumventing protection. Dolphin is designed to recreate the GameCube and Wii hardware as software, and to provide the means for a user to interact with this emulated environment. Only an incredibly tiny portion of our code is actually related to circumvention.
That doesn't sound like a strong argument to me. I'm a supporter of emulation but I think that the amount of code involved in making it happen doesn't stop it from being the primary purpose.
what's being circumvented here is the encryption of Wii games. the primary purpose of Dolphin is not to decrypt Wii games, it is to emulate them (in other words, make them interoperable with PC hardware, as pointed out later). the circumvention of encryption is a necessary part of emulation, but it's not the primary purpose.