They didn't copy or reverse-engineer stuff. They didn't abuse any existing copyrighted works but instead invested a lot in creating their own non-commercial sequel of the game.
They made a completely new game, with their own storyline and engine. The only reference to the King's Quest is that made it a sequel to the original series. Oh, they even dropped the name King's Quest almost a decade ago. In essence, the new game is an original copyrighted work by them.
There's something horribly wrong with that.
You shouldn't be able to "own" characters or a plot or a storyline: you should be able to own actual works based on a set of characters, the plot, or the storyline.
Merely continuing from where the original ended should in no way imply a derivation of works.