For what it's worth, they seem use blocks as large as 128 KiB, if I understand correctly. Do you know how likely an overlap of such huge blocks is? Complete novels and pictures fit easily into such a huge block. Considering this I don't see their point that this is supposed to prevent copyright infringement at all. Do you think 20 seconds of an song are not copyrighted? Artists have been sued for sampling less than a second of someone else's work. Even if you could assume that this is "Fair Use", keep in mind that "Fair Use" exists only in US law and it might not be applicable for this case anyway.

In the OFF system, the blocks are NOT chunks of the file. They are completely randomized pieces of data that are not derived from the original source file.

So then how, you may ask, if they are random, can they be assembled? With the use of mathematics. The URL used to assemble them was formed with the XORing of blocks used to transfer the material. So you apply the reverse to re-assemble them on your local machine. Yes, that may be considered copyright infringement, but UP UNTIL THAT POINT, transmission of random pieces of data does not constitute as breaking the law.

Think of it this way: A computer file is, like you said, a really big number. For every number there are an infinite number of possible representations for this number. If for some reason we were to allow 12 to be copyrighted by Brittney, she would still have no claim on the numbers 5, 7, 13 and 25.

So if the blocks are not representative of the original data, They are simply numbers that (with the use of mathematics) can be re-assembled into the original data on the user's machine. If you think of it from a mathematical point of view, 56 can be represented as 4*14, 2*28, 1*56, 7*8, 58 - 2, 50 + 6, and so on. So if you have one file, lets say the number 24, and another file, the number 80, they still share the common factors 1, 2, 4, and 8.

So what the system accomplishes is this: Users cannot be held accountable for transfering data. The only possible legal argument could be against those who share URLs, the instructions on assembling data. It remains to be seen how this will be dealt with.

You are confused. OFF splits every file into 128 KiB large chunks, then transcodes these and operates on them. This is technically not different to splitting a file into chunks and putting each into a ZIP or RAR container. If the legal argument of OFF worked, you could use a much simpler encoding. Just negate all bits and it's not the original data nor usable anymore. Everything else is just overkill.

I think this approach just shifts the problem but doesn't solve it. Even if it was legal now, I guarantee you that it will be declared illegal as soon as it becomes popular. Just like they stole so many other rights from people before.