Well if they block the site they could have issues with the open internet laws or some other regulations. They don't necessarily know what you are doing is illegal much like megaupload was used for both legal and illegal purposes. The article does not say how they will know what you are downloading is legal or not, that is the real question. Will it be going to a site, most of the time now if you post something you will get a takedown notice like if you include a skit from SNL you recorded and put the video on your facebook page.
The policy seems like a 2x three strikes rule and to me seems pretty reasonable
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