The argument is over whether the challenge is identical with its spirit or with its statement. Patrick clearly failed the spirit of the challenge. He tried to exploit a loophole in the statement of the challenge. So what which is the actual challenge?

Actually, it doesn't matter. Patrick failed to complete the challenge as stated, which is important because he was exploiting a loophole in the statement. Technically, his files were smaller. But technically, he was required to send Mike his files and decompresser. Instead, he put them on his server and sent Mike their location. Mike then had to get the files. It goes both ways.

Finding loopholes, while clever, isn't terribly interesting.