I wonder why they settled, I thought emulators were protected as long as they don't contain any copyrighted stuff. Was it because they circumvented DRM?

I wonder why they settled

Because they were engaged in code theft, piracy and Nintendo had them dead to rights. Leaked chats and drive folders showed they were actively pirating games, paywalling questionable content and using the Switch SDK. Clean room emulation implementations are completely legal. Their methods and behavior were not.