If Naka disallowed use of the original Sonic characters, it seems to me that Dr. Eggman probably would've been disallowed as well. His inception was even earlier than Sonic's. As mentioned, Sonic was 'lent out' to so many other badly designed games that I honestly doubt that Naka had much control over where Sonic went. In the end, he belonged to Sega, not him. I think it's far more likely that upper management decided to try to capitalize on Knuckles' current popularity (EVERYONE wanted to play as Knuckles when Sonic 3 came out, so they were probably following the popularity of S&K), and decided a concept that varied so highly from the original formula probably shouldn't star Sonic himself but use some kind of relation to it to score sales.
This is the exact line of thinking that lead to the inception of the Shadow May Cry spinoff.
There's actually a really ironic introduction in a Sega Visions I have on a spread outlining Chaotix which goes like "ME AND MY SHADOW."
Now, I could see Naka making a fuss about using 'his engine' and such, if that is indeed the case. I wasn't lurking around or read anywhere that the engine to Chaotix wasn't based on another prior Sonic game, so if someone could link me to that revelation that would be interesting to read. I have admittedly not been able to read all of the threads on these new prototypes; it's quite a lot to take in.


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