Fan game legality basics:1) Companies that own intellectual property can shut you down for unauthorized use of it, regardless if it is for profit or non profit.
2) They can outright sue you, without warning, for unauthorized use of their property.
3) They have the right to deny any request for use of their property.
4) Parody material is exempt from this. You can make fun of anything without permission.
Why does it happen?:It makes the company look loose with their IP. It's seen by some to be tolerance on the use of their property, which makes them look weak, or unable to handle people using it without permission. A corporate pissing contest so to speak. It can also be seen as other people making non-money profit; hits to a webpage, merchandising, popularity, etc. These can lead to actual derived money profits.
What usually happens if they want to shut you down:They give you a warning to cease and desist. Law suits cost money, so they'd rather intimidate you into doing what they want for free. Refusal to that can go to a law suit, but they usually will try and persuade you once more. Again, law suits cost money. Eventually they will sue you, and it will be a lose lose situation for you.
Not all companies are the same:Not all companies have the same tolerances and policies, outside of selling it as they all crack down on that. Some companies do not allow fan games to even exist, while others encourage it. Here are some examples;
Paramount - Unauthorized Star Trek IP did not exist. You made so much as a fan website, you got sued, end of story. Ever wonder why there were so many PARODY (see above) Star Trek sites?
Funimation - You try to make a fan game of DBZ, and you will be facing a real law suit threat. They do NOT fuck around.
Nintendo - Does not allow actual/quality fan games. Flash games you may get away with, but anything actually good will be shut down (ie that Metroid Remake).
Konami - While they have no official stance on things, as far as I've heard, they seem to let fan games go. I don't recall a single fan game being shut out.
Capcom - Encourages fan sites, games, and more. They even have fan page starter kits, and officially allow the unauthorized uploading and sharing of their game music, believe it or not (I have asked and verified it myself). Their relatively new website (
http://www.capcom-unity.com/) is dedicated to fan interaction and content.
Final comments about this issue, especially for Konami:I really haven't seen a true high quality fan game to come of Konami's IP. It is possible Esco and I could become the first 'examples' of a crack down. Not often do we the fans have an opportunity to make a game noticeably BETTER than the official titles. That may NOT be taken lightly. Only time can tell though. This is also another reason I dont publicly update too much, keeping it on the low.