It's worse than bad, Nintendo's argument seems to boil down to "decryption = circumvention", even if you have a legit keys.prod file from your own system. The full text goes into detail about how Nintendo thinks that using a decrypted keys.prod file is circumventing their DRM.

There's so many second and third order consequences from a legal precedent for that it boggles the mind, and I'd hope that any judge that understood that should dismiss this lawsuit with prejudice. My fear is that it goes the other way and an injunction is successfully put in place against Yuzu.