Yes, this is involuntary denied boarding.
Whatever other posters may think, the airline should not give away seats to standby customers [who should be present and ready to make an immediate departure if necessary] until the gate is about to close - giving all booked passengers the opportunity to travel, if they make it to the gate on time. Unilaterally deciding ahead of time that you can't travel/won't make it in time is unacceptable.
There is case law that upholds your case. You should claim the compensation as set out in EU261/2004.
31 The referring court states that, in the context of a single contract of carriage involving a number of reservations on two immediately connected flights and a single check-in, the first of those flights was subject to a delay attributable to the carrier in question, that the latter mistakenly expected the passengers in question not to arrive in time to board the second flight and that, as a consequence, it allowed other passengers to take the seats on that second flight which were to have been occupied by the passengers to whom boarding was denied.
32 However, such a reason for denying boarding is not comparable to those specifically mentioned in Article 2(j) of Regulation No 261/2004, since it is in no way attributable to the passenger to whom boarding is denied.
33 In addition, it cannot be accepted that an air carrier may increase considerably the situations in which it would have reasonable grounds for denying a passenger boarding. That would necessarily have the consequence of depriving such a passenger of all protection, which would be contrary to the objective of Regulation No 261/2004 which seeks to ensure a high level of protection for passengers by means of a broad interpretation of the rights granted to them.
34 In a situation such as that in the main proceedings, that would, moreover, result in the passengers concerned suffering the serious trouble and inconvenience inherent in a denial of boarding, even though that denial is attributable, in any event, to the carrier alone, which either caused the delay to the first flight operated by it, mistakenly considered that the passengers concerned would not be able to present themselves in time to board the following flight or sold tickets for successive flights for which the time available for catching the following flight was insufficient.
35 Consequently, there are no reasonable grounds for a denial of boarding such as that at issue in the main proceedings which must therefore be characterised as ‘denied boarding’ within the meaning of Article 2(j) of Regulation No 261/2004.
36 In the light of the foregoing, the answer to the question referred is that Article 2(j) of Regulation No 261/2004, read in conjunction with Article 3(2) of that regulation, must be interpreted as meaning that the concept of ‘denied boarding’ includes a situation where, in the context of a single contract of carriage involving a number of reservations on immediately connecting flights and a single check-in, an air carrier denies boarding to some passengers on the ground that the first flight included in their reservation has been subject to a delay attributable to that carrier and the latter mistakenly expected those passengers not to arrive in time to board the second flight.