You've mentioned that Sega is probably worried about S3&K's music rights and that stops any new ports from happening; if this is the case, is there a reason the Steam version can stay up for sale?
Licensing, especially music licensing, is a weird thing where performances are licensed separate from the actual songs themselves. That’s why early Guitar Hero games would often contain covers of famous songs, because they weren’t paying for the performance, only the notation.
This is also how so-called “public domain” songs still get flagged for copyright on Youtube. Mozart’s Symphony No. 40 might be technically free for anyone to use, but if a specific orchestra plays the song, they own that performance and can claim copyright to it.
(Universal Music Group claims ownership to this performance, for example, even though Youtube notes it’s a public domain composition)
It’s long thought that the reason Sega could keep re-releasing the Classic Sonic games is because they own rights to that specific performance (read: the direct Sega Genesis FM Synthesis output). As long as they stuck to a very narrow definition of that performance, they were fine.
Now, here’s where things get tricky for Sonic 3, and this is purely speculation on my part, but it’s educated speculation:
Sonic 3 & Knuckles released on Steam in 2011. The information about Cirocco Jones supposedly preparing a lawsuit related to Sonic 3′s music didn’t surface until 2012 – within 10-ish months of the Steam release.
Nobody really knows what that lawsuit was actually about because it apparently never happened (that we’ve ever known about). Which is the catch: because Sega doesn’t know what the lawsuit was about, they have to operate under the assumption it could be about anything. The performance rights situation might not apply here.
Which means, broadly speaking, Sega could be liable for any version of Sonic 3 ever released, perhaps totaling millions or even billions of dollars of owed damages to Cirocco Jones (and whoever else is involved).
Rather than incur further damages by continuing to re-release new editions of Sonic 3, Sega has instead opted to cut it from any recent Genesis collections in the hopes of lessening the impact. But Sonic 3 for Steam is already out there, and there’s no putting that genie back into its bottle. Whether Cirocco Jones ever goes through with that lawsuit or not, Sonic 3 for Steam might be a part of it, so they might as well just leave it up and continue selling it until the other shoe drops.
The only move for Sega to make at this point would be to directly acknowledge whatever beef Cirocco has with them and resolve it, something they are apparently afraid to do. It’s possible they’re trying to maintain plausible deniability (”we didn’t know there was a problem”) and forcing him to make the first move.
Regardless, we are locked in a stalemate, with Sonic 3 caught in the crossfire.
