If I'm not mistaken, didn't Paramount have an official statement years ago allowing the fan made films? The studio was seeing them as fan produced "plays", and as long as there was no profit being made from the productions. Alec Peters could use that as an effective defense.
I think that went out the window when Peters started paying himself and select staff. It is no longer "not for profit" when you start paying yourself a salary from the funds collected to make the film.