Sega is taking legal action against YTMND

At the risk of being devil's advocate (and in doing so, I don't necessarily agree with the viewpoints put forth in the letter from Sega Europe's lawyer), as a corporation, Sega has a duty and an obligation to protect their trademarks in any way possible. At least in the US, neglecting a trademark in the face of someone else using it inappropriately can lead to the courts determining said trademark is now in the public domain, meaning anyone could do anything with the character of Sonic the Hedgehog with or without Sega's blessing. Say what you want about the quality of Sega's output in recent years but the fact still remains that Sonic is a potential cash-cow for them if used properly.

Now, as for the matter of "fair use" in the case of parody, I'm not a lawyer so I don't know the specifics of US copyright/trademark laws when it comes to that. However, the argument can be made that 1) Sega might not be able to win this case and 2) it could be viewed as a "waste of money," but I can assure you that it's not a waste even if it is an un-winnable position. Lots of corporations take the tactic of suing (even in the case of fraudulent or baseless law suits) as a way to "win" in the end, forcing the opponent to give up because they can't afford a protracted legal battle. Likewise, even if Sega sues, it goes to court, and they lose, they still have the situation to point to as an active attempt at defending their trademark should an attempt be made in the future to get it declared public domain.

From a business standpoint, this not only makes sense for Sega to take this action, but I'd call them a fool for not trying it. Personally, I expect this to be settled quietly out of court and promptly forgotten about.

Jam it back in, in the dark.