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.