Ah, so then you would need to make every little 128^2 square be a meme of its own, which could then be part of a broader picture at the same time

Not at all. In fact I would call doing that the most German thing you can do.

Why should they if it meets the letter of the law? Letter of the law is all that counts.

Well, the gap between the letter of the law and the spirit of it is quite narrow in most cases because of how the law is written in an abstract form and applied to a real case. Intent matters, not just the execution. If you know that something is unlawful, but you take deliberate steps to (seemingly) circumvent a rule while effectively breaking it with the result of your action, you're still on the hook. I find that people generally underestimate this aspect of how law is applied to the real world.

There is a certain extend where the judge can easily see that you're just trying to bullshit around the law itself.

In this case, the most likely outcome is that the judge will rule that breaking the image into 128 pixel squares and then reassembling them is simply the same as displaying the full image by intent. The result is the same so you broke the law.

> some recursive derivation of the acronym

MIMIC: MIMIC Is Memes In Chunks.