It probably is legal, and if it isn’t no one has the resources possible to fight against Nintendo. At least, no one who would be interested in taking that fight.

My prediction- someone’s going to try running a major tournament, and we’ll see if Nintendo is serious about policing things then (they probably will be, unfortunately). It does mean that any outside investment coming into Melee will be nil from here on out, so it’s effectively capped the growth of Melee forever.