How does Windows 8 know you're upgrading?

I may have missed something really obvious, but it looks like gives you essentially a full Windows 8 Pro license for $15, whether or not it is an upgrade. I reformatted the boot drive on my laptop, so the existing Windows 7 Pro install was deleted (including the recovery partition). I then installed Windows 8 Pro. The only product key it asked for was the one I bought for $15. It did not ask for a Windows 7 key, nor for me to insert the Windows 7 install DVD. Once the laptop was back online, it automatically activated itself, seemingly without issue. It is now downloading five Windows updates.

So-o-o-o-o... is there a catch I'm not seeing? I suppose Microsoft <em>could</em> pull the plug on massive numbers of ineligible product keys in the future, but I'm pretty sure that won't happen.