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It's not illegal. There is also no reason why it would *or* should be illegal.
I do agree it's not a nice move.
If they haven't been the Japanese EA since the merger, what the hell have they been?
Square Enix screwed up a much loved game, years after launch when most of us have already made the purchase, and then lay the blame on Steam for their actions.
I think this is very much Valve's problem, not because it's a legal issue, but because their customer (we are NOT the customer here, we are the product, a bunch of little walking wallets) threw them under the bus.
If Steam broke the ability to play offline it would not exist only in this game, others would be affected, and with their history of custom online DRM with Final Fantasy VII & VIII it's not unreasonable to assume they're simply at it again.
Mind you, I don't have evidence either way. But before I'm willing to condemn a publisher, I want to know what's actually happening.