Your argument would be a good one, Rowan, but there are two problems with it.
1. Copyright was not cited as a reason for the video's removal. The people who made it are studying to be lawyers, they are very aware of copyright. (That's not to say that it isn't possible, and indeed I think it explains a lot of it.)
2. There are a whole bunch of Blurred Lines parody videos still available on YouTube. I could go find you ten of them if you don't believe me. I don't even think this is the most popular.
Personally I think if they dropped the dildo/vibrator then they'd be alright. But then surely there'd be no videos about dildos and fleshlights, etc. etc? ...but there are. ¯\_(ツ)_/¯
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