Isn’t it the decryption keys? and also the fact that they used an unreleased leak of tears of the kingdom to playtest paywalled compatibility?

They don’t actually provide decryption keys, the user has to either extract them from their own Switch or find them elsewhere online. However, it could be argued by Nintendo that using an unreleased game ROM for testing proves that the devs themselves were guilty of piracy, and were therefore somehow condoning the use of their emulator for piracy.

Either way, we won’t know how well Nintendo’s arguments would have held up in court, because the devs settled rather than fight it out.

Piracy: ꜱᴀɪʟ ᴛʜᴇ ʜɪɢʜ ꜱᴇᴀꜱ
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