By that interpretation, you can never legally take part in a whiteboard coding session during an interview either since the code you whiteboarded also belongs to your current employer.
There is such a thing as being too literal.
In this case, the hiring company just seems to want to say "This isn't an actual problem we have, but we use it as a problem set, and you should be paid for your time" because this goes above and beyond an in-person interview.
Your (existing) employer (in California) wouldn't begrudge you for taking part in a user-research survey that resulted in a $100 Amazon gift card. This could be done the same way, the difference is that you're writing code (which is what you do for a living).
Again, I am not a lawyer ;).
> and definetly apply in this situation
I have received legal advice in my jurisdiction on this specific issue such that I was part of a team that decided not to offer pay in situations due to this advice.