However, their licenses (keys) are terminated, which is the right to own the product, right?
So if they have no keys and have Blockland then couldn't they be sued for illegal posession?
Or maybe you can have the product legally without a key, but I thought a key was a license.
The key is a license to access the full features of the game (including the lack of brick restriction in single player and multiplayer).
If you violate the End User License Agreement, your license is terminated, meaning you go back to demo mode. Until you purchase a new license, you are stuck in demo mode. If you were to somehow bypass this, yes, you would be accessing a service illegally. However, no crack exists for Blockland, and I'm fairly confident that no crack will ever exist.