The Oscar-winning director filed the trademark suit on Monday, March 31 in the Federal District Court in New York.
In May 2007, the clothing maker and retailer used an image of Allen dressed as a Hasidic Jew from his film "Annie Hall" alongside Yiddish text meaning "the holy rebbe" and the American Apparel name on billboards that were displayed in New York and Hollywood.
In the suit, Allen claims that American Apparel used his "image and identity in total disregard of his rights to privacy and publicity, his exclusive property rights and his personal rights" and that the usage is "made especially egregious and damaging because Allen does not engage in the commercial endorsement of products or services in the United States."
In response, the company claims "the image of Allen dressed as a Hassidic character alongside Yiddish text was meant strictly as a social parody" and that the company sometimes uses billboards "for non-commercial social and political commentary."
Allen is seeking at least $10 million in compensatory damages in addition to unspecified punitive damages.
Allen, 72, won Oscars for directing and writing "Annie Hall" and writing "Hannah and Her Sisters." His latest films include "Melinda and Melinda," "Match Point" and "Cassandra's Dream." Coming up is his "Vicky Cristina Barcelona" starring Scarlett Johansson and his opera directorial debut of "Gianni Schicchi," one third of Puccini's "Il Trittico" for the 2008 season of the Los Angeles Opera.