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.
Paris Hilton has struck again! This time the heiress, 29, was detained at a private airport on the French Island of Corsica after authorities discovered less than a gram of marijuana in her purse.
According to Corse-Matin newspaper, Hilton was travelling on the private jet with “people close to power in Malaysia”, and was due to travel by yacht to the luxury resort of Porto Cervo in Sardinia, Italy.
The incident is the Hilton’s second in the same month with the law. It was only two weeks ago –at the Brazil-Netherlands World Cup quarter-final match in Port Elizabeth – that she was detained for possession of the drug, but released and the case dropped and no charges filed.
Paris Hilton, found it prudent to address the incident, Tweeting early Saturday, “So sick of people making up rumors about me. The latest one about me is completely false too. Don’t believe what you read. Silly nonsense.”
Hilton who is the great-granddaughter of the Hilton hotel chain’s founder, shot to fame in 2003 when her boyfriend leaked a video of their sexual escapades on the Internet.
The hotel heiress, 29, was arrested in Port Elizabeth after allegedly being caught by police following the quarter final match between Brazil and Holland.
Police confirmed Miss Hilton and her friend Jennifer Rovero had been arrested and said an investigation was under way.
Miss Rovero, who describes herself as a former Playboy playmate, model and actress on her website, was sentenced to a fine of 1,000 rand ($130) or 30 days in jail for smoking a marijuana joint. Her lawyer told the court she was in South Africa to cover the World Cup as a freelance photographer.
Ms Hilton appeared in the court wearing a beige dress and a glittery necklace with her hair in two ponytails, a reporter said.
In court she was addressed as “accused number 1″.
A South African judge later dropped the charges against Miss Hilton, however.
“They were together, but we didn’t have a case against Hilton. The joint was in Rovero’s possession, not Hilton’s,” the prosecutor said.
Her publicist issued a statement calling the arrest a misunderstanding.
“Paris Hilton was questioned today by police in South Africa on allegations of smoking marijuana,” the statement read.
“However I can confirm that the incident was a complete misunderstanding and it was actually another person in the group who did it. The case has been dropped against Paris and no charges will be made.”
South Africa’s Times newspaper reported that Hilton was escorted by police to the Mount Road Police Station in Port Elizabeth shortly before 8pm.
Hilton only arrived in South Africa on Thursday for a World Cup trip.
Since arriving in the host nation on a private jet she has posted about her experience on Twitter.
Writing on her account, she said: “It’s so beautiful here. I can’t wait to go on the Safari this week and see all the amazing animals.”
She later said: “Hey guys, there’s a lot of crazy rumors going around. Just want you all to know the truth. Everything is completely fine. I was not charged or arrested, cause I didn’t do anything. I was assisting the police with the investigation and answering their questions. Everyone was super nice and friendly to me. I love South Africa! Such an amazing place, especially during The World Cup!”
[Post update via the UK Telegraph]