This is equivalent to making an app like Malwarebytes free for regular users, but if a big company tries to install it on all their machines... they'll run into legal problems.
It's not anything like that, though. The licensing for malwarebytes explicitly states the conditions for use. Tiktokers don't have the right to create their own licenses for content they make publicly available on the platform. They have to abide by the Tiktok terms of service or remove their content from the platform. While it's there and shared publicly it's free to use and remix per TOS unless the content creator makes it private or removes it.
This guy wants the clout that comes with viral public content on Tiktok and also act like it's his private intellectual property. But it doesn't really work that way. Activision is asking a judge to make the guy go away and to pay for their legal fees in defending against his attempt to extort them. Seems reasonable.