I didn't know that. However, whatever a company chooses to write on their covers or in their software manuals does not override a country's own laws, so I'm still not sure if he was doing something that could be punishable by Spanish law (they were spanish, right?).
I know for example that even if a CD explicitly stated that copying, even for personal use, is forbidden, that doesn't make it illegal for me to take copies for personal use in Norway. The key word is of course personal, and what i was going to suggest was that perhaps the translator (or translators) should have kept quiet about it and done it for personal use (allegedly), then suddenly "someone" would hack them and steal their translation and make a patch in a shorter time than SE could react. Once it's been released to the internet, there is no way to make it go away, after all.
In either case, it is a shame that their hard work ended with a C&D, but at the same time, that is the only reasonable thing for SE to do when they are themselves going to release the game officially localized. They should have said it in a nice way, though.