Correct to say that it is not a violation of any law, but it smacks of protectionism. Given the size of Google, I feel they should be more relaxed towards their publishers. It is not a give and take, it is a Win Win situation for Google and Publishers. This should be kept that way and seen as that way.
In the end Google can do whatever they want to do. Yes, it is scary for that site being banned, but if they had 80% of their traffic coming from Google and they relied on that traffic then they shouldn't have sold links on their site since it is against Google's rules. Simple as that.