Hairtech International Inc says the 29-year-old breached her contract to wear and promote their product when she wore the extensions of a competitor in 2008.
The company wants $35m (£22.4m) in damages which is reportedly 10 times what the socialite was originally paid.
It says Hilton also missed a launch party to celebrate the line in hair extensions back in 2007 because she was in prison, which lost the company $6.6m (£4.2m).
The socialite served 23 days after she was twice caught driving on a suspended licence while on probation for reckless driving.
The company also says that Hilton’s party-filled lifestyle goes against its marketing campaign.
Previous issuesIt’s not the first time Hilton has been in trouble over her promotional duties.
In 2008, the producers of National Lampoon’s Pledge This! sued the star for failing to properly promote the comedy.
Last year, a judge in Miami ruled Hilton didn’t have to pay the $8.3m (£5.3m) the movie cost to make.
However, a court is still deciding whether or not she will have to pay back part, or all, of a $1m (£640,882) fee for appearing in and executive producing the 2006 film.
Court documents stated that Pledge This! was shown in just 25 cinemas and made less than $3m (£1.9m) worldwide.