Deee-Lite's Lady Miss Kier, singer of the club hit "Groove Is in the Heart," lost a 3-year-old court battle over the use of her likeness yesterday, as first reported by the legal site Legal Reader. The decision was a costly one for Kier--real name Kierin Kirby--as the singer/DJ has to pay more than $600,000 in legal fees to Sega of America, the video game maker she sued.

Kirby, singer for the '90s retro-funk-dance group that disbanded in 1995, claimed that Sega's Space Channel 5 game, set in outerspace in the 25th Century, based its character Ulala on Lady Miss Kier.

Kirby claimed that Sega approached her in 2000 and said it "was considering using one of several music videos or songs, including 'Groove Is in the Heart,' to promote Space Channel 5 (SC5) in England and Europe." Kirby said she declined the offer and refused to give Sega permission to use her songs, likeness, or anything else.

When Kirby learned of the animated, dancing character in the game, saw how much it looked like Lady Miss Kier, as well as her name, Ulala, which resembles what Kier sings after the chorus of "Groove Is in the Heart," she filed suit in Los Angeles in 2003.

But the trial court didn't buy it, finding that "unlike the game, which is set in outer space several centuries in the future, Kirby’s fashion approach harkens back to a retro 1960’s style, and neither her videos nor photographs relate to outer space."

Sega was also able to convince the court that not only had the company created SC5 long before 2000--it was released in Japan before 1999--but that Ulala's creators had never even heard of Deee-Lite or Lady Miss Kier prior to creating the character.

Kirby appealed the case, but the California Court of Appeals upheld the decision. The court also found that Ulala "contained sufficient expressive content to constitute a 'transformative work' under the test articulated by the [California] Supreme Court," making Ulala "more than a mere likeness or literal depiction of Kier."

The worst part for Kirby is that California law stipulates that an unsuccessful plaintiff in such a case must pay the defendant's legal fees. Sega incurred attorney's fees of $763,000, which the trial court reduced to an award of approximately $608,000. The court also ruled that Kirby must pay the company's legal fees for the appeal. The case has been remanded to the trial court to determine the amount of additional fees Kirby must pay the company.

Ouch.