It already was legally distinct since it wasn’t made by the company behind pal world.
That's not the issue, or what that means here. "Legally distinct" in this context would mean that the product isn't infringing on the IP, copyright, or trademark of a similar product. "Yellow rat" is fine, "Pikachu" is not.
Go ahead and try to explain it using copyright and trademark laws all you want, but I don’t understand how a MOD that isn’t backed by a company can be arbitrarily blocked by another company.
If someone ripped a verse or a chorus from a song, and uploaded it to Spotify, you don't think that Universal could contact Spotify to take it down or block it?