One thing that a lot of people don't seem to realize in this whole discussion is that, whatever you may think of it as far as artistic integrity goes, Pokémon only owns the full complete design of their characters and the actual game files, but not every possible independently produced variation or recombination of those traits. They own Wooloo but they don't own every possible roundish sheep-like creature.
To be fair it's obvious that Palworld's company Pocket Pair doesn't care about originality. But whether the are literally infringing on the Pokémon property is unclear, and a lot of people are making serious but baseless accusations out of snowballing social media outrage.
If there's any actual, real issue that warrants a lawsuit, you can be sure that the Pokémon Company's lawyers will find it out. It's not like they need anyone to defend them, we are literally talking about the biggest media brand in the world.