Bosses at Hairtech International claim they gave the hotel heiress $3.5 million (£2.3 million) to become the spokesmodel of their Dream Catchers range of clip-in locks in 2007.
But, according to a lawsuit filed in Los Angeles County Superior Court, the reality TV star violated their deal by appearing ""in magazines and on television not wearing (their) hair extensions and was in fact wearing competitors' hair extension products"".
In addition, the suit accuses Hilton of damaging the brand following her 2007 stint in jail for driving while on probation for a drink-driving charge - because there was an ""implied term"" in her contract asking her to ""obey the law"".
Hilton was also reportedly scheduled to attend an important industry party on behalf of Hairtech but missed out on the event because she was behind bars.
Hairtech executives are suing Hilton for fraud and deceit, alleging her actions cost them a whopping $35 million (£23.3 million), reports TMZ.com.