The cable industry mogul – who won the nickname Darth Vader because of his ruthless dealmaking style – is at it again, and in spectacular style.
He has turned on his long-time ally, the television executive-turned-internet entrepreneur Barry Diller, and is trying to oust him from the helm of his internet empire, IAC/InterActiveCorp.
Mr Diller has shot back that Mr Malone's reasons are "incomprehensible" and that his people have gone "insane", but the situation last night was that both men stubbornly insisted that they controlled the company. It promises to be a doozy of a media feud.
IAC is Mr Diller's publicly quoted holding company, whose businesses include the box office website Ticketmaster, the upstart search engine Ask.com and the home shopping channel HSN. Mr Malone has a 30 per cent stake in IAC, through his company Liberty Media, but under a proxy deal signed over a decade ago, he lets Mr Diller cast its votes on his behalf.
That has worked fine as long as the two men have agreed on strategy. But cracks in their relationship have been widening since IAC announced plans to split itself into five parts – a last gasp attempt to reverse the share price slide that has plagued the company.
The five new companies will be structured differently from IAC, it was envisaged, in that there will be no special voting privileges attached to any shares. That strips Liberty of rights that attach to its current IAC stake, and the forthcoming reduction of his power has sent Mr Malone ballistic.
Mr Diller has no right to vote Liberty's stake in favour of a reorganisation that runs counter to Liberty's interests, Mr Malone argued in a lawsuit fired off earlier this month. It amounts to a "corporate coup", according to the suit. In a rival lawsuit, IAC is demanding to be allowed to vote the Liberty stake in favour of the reorganisation.
Yesterday, it became clear that these first couple of suits are just the start of a feast for the lawyers. Liberty has launched an even more aggressive action to oust Mr Diller and the rest of the IAC board, which includes media industry bigwigs Edgar Bronfman Jnr, the chief executive of Warner Music, and Diane von Furstenberg, Mr Diller's fashion designer wife.
By sacking Mr Diller from a number of Liberty subsidiary companies which hold the stake in IAC, Mr Malone claims he already controls IAC, and he wants his own slate of directors put in place.
"The action is preposterous," IAC spat back in a statement to shareholders yesterday.
"Liberty does not control IAC. Barry Diller continues to be the chairman and chief executive of IAC, the board of directors of IAC elected at last summer's stockholders meeting continues to manage the affairs of the company.
"Even after reading the various complaints repeatedly, Liberty's theory that it now controls IAC is incomprehensible. This action is a desperate sideshow designed to exert pressure on the board. All it demonstrates is that Liberty will stop at nothing to advance their own interests at the expense of the other stockholders."
Mr Diller was even ruder in a statement he emailed to American journalists.
"Everything they cite is hogwash," he said. "I am beginning to think these people are insane." Mr Malone's support for Mr Diller stretches back to the mid-Nineties, as the former TV executive was building IAC.
Hailing from Beverley Hills, he began his career in the post room of the legendary Hollywood talent agency William Morris, made his name backing hit series such as Taxi and Cheers while at Paramount studios, and ultimately built Fox into a major US television network for Rupert Murdoch's News Corp.
The proxy agreement, whereby Mr Malone handed control of his IAC stake to his friend, was meant to last until Mr Diller left the company or died.
It seems, however, that the two men have been falling out of love for some time. The spin-off of Expedia, the online travel agent, in 2005, failed to halt the underperformance of IAC shares and Mr Malone was soon grumbling in public.
"It is a little uncomfortable for Barry," he said in an interview with the Wall Street Journal a few months ago. "Right now we are the shadow that walks around behind him."
In retrospect, it seems that Liberty's decision to spend $340m (£171m) raising its stake in IAC from 25 to 30 per cent earlier this month was intended to bolster its position in a power struggle to come.
The escalation of hostilities this week has left analysts and investors wondering how the feud will ultimately play out. It seems likely that Expedia, which has similar ownership arrangements to IAC, will also be drawn into the struggle in some fashion. The worry for some investors was that a feud between the two big shareholders will be distracting, if not outright destructive for the businesses.
But both IAC and Expedia shares were trading higher yesterday, as speculators moved in. What they were betting on is that Mr Malone's extraordinary legal assault on IAC is not hot-headed, but hard-headed. By upping the ante in this way, Mr Malone is not really planning to destroy Mr Diller, but rather to corner him into a deal. It's just his way of negotiating a better divorce settlement.
If the past is any guide, it could be a good bet for the speculators. Mr Malone spent the best part of two years in a cold war with another former ally, Rupert Murdoch, which only ended last spring.
Having secretly accumulated a large stake in News Corp, Mr Malone threatened to destabilise Mr Murdoch's plans to hand the company to his children, and may even have threatened the great mogul's own control.
Ultimately, the two men agreed an asset swap that handed Mr Malone News Corp's controlling stake in the satellite broadcaster DirecTV in return for Mr Malone's shares.
Mr Murdoch effectively paid a $1bn premium to rid himself of his troublesome rival, and Mr Malone made the sort of deal he just loves – one with huge tax advantages.
Mr Diller is already entertaining offers for some parts of the IAC empire, reportedly including Ticketmaster and the LendingTree mortgage broker business, and Mr Malone himself is eyeing the HSN business, which would complement Liberty's QVC. An asset swap may well be the endgame in this latest feud, too. But expect some fireworks before then.
Roots of a dispute
Barry Diller, 65 Chairman and chief executive of IAC/InterActiveCorp. Under a proxy deal made a decade ago Liberty Media had agreed to let Mr Diller cast votes on its behalf.
* John Malone, 66 Chairman of Liberty Media. Liberty owns nearly 30 per cent of IAC, but has almost 62 per cent voting control through a dual-class share structure.
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