The lawsuit hinged on Lee's testimony. The Kirby estate argued that Kirby had created characters on spec and offered them to Marvel.
It was always Kirby's practice to work that way going back to the 40's and 50's. There are many examples from the 40's and 50's of Kirby's character presentation drawings which he and Simon used to pitch ideas and characters to publishers. This isn't an unusual approach in comics it's a typical way of presenting new ideas to publishers before any actual story pages are produced.
Most people have seen examples of the New Gods characters Kirby offered to Marvel in the 60's. The estate argued that the early 60's characters were pitched to Marvel in the same way. Susan Kirby testified she saw her father working on presentation drawing for the FF and remembers because her dad told her he was naming the Invisible Girl after her. Jim Shooter recently described holding Kirby Spiderman character proposal in his hands while at the Marvel offices in 1969. To my knowledge only one of Kirby's character proposals exists today. TJKC published Kirby character proposal for the Boomerang a couple of years ago.
Because Kirby wasn't under contract if it was possible to show Kirby was creating characters and pitching them to Marvel that would constitute work done on spec, just as the New Gods character proposals were done on spec.
The judge based her ruling on Lee's deposition where Lee claimed he alone and created the characters and plots, and given them to Kirby (and the other artists) to illustrate.
The judge took Lee at his word that he alone created the plots and characters.