Microsoft and Barnes & Noble settle patent dispute; create new subsidiary

Microsoft and Barnes & Noble just became unlikely allies, settling a patent dispute and forming a new subsidiary in one fell swoop.
Written by Mary Jo Foley, Senior Contributing Editor

Microsoft and Barnes & Noble have settled their patent dispute and are forming a new venture to focus on e-reading and the education market.

On April 30, the pair announced the formation of NewCo, which will include Barnes & Noble's digital and college businesses. NewCo will create a Nook e-reading application for Windows 8, as well.

Barnes and Noble will own 82.4 percent of the new subsidiary, and Microsoft will make a $300 million investment in the still-to-be-named NewCo and hold a 17.6 stake in the company. (None of Microsoft's employees will be moving to the new subsidiary, a spokesperson told me.)

Here are a couple of things I found interesting about today's announcement:

1. The Microsoft representative quoted in the press release is Microsoft President Andy Lees. Lees was moved from heading the Windows Phone business back in December 2011. His new role, Microsoft execs said at that time was unspecified special projects that would be focused on Windows Phone and Windows 8. Today's press release doesn't mention Windows Phone at all, but perhaps this new subsidiary also will be doing a Nook reader app for Windows Phone 8. Update: A Microsoft spokesperson said Lees was the one spearheading this deal for Microsoft.

2. The settlement piece of today's announcement was buried in the press release. I'm thinking the creation of NewCo was one of the terms of the settlement, though so far, neither company is sharing any details of how their cantankerous patent dispute was tabled. B&N was one of the last companies to hold out from paying Microsoft royalties for publicly unspecified patents which Microsoft is claiming are infringed on by Android. Was today's creation of NewCo predicated on B&N settling with Microsoft? Does B&N still have to pay Microsoft royalties on every Nook sold as part of the settlement? (Update: The answer to that one is yes, according to a Microsoft spokesperson.) No word on any of these questions so far, and I'm kind of doubtful there will be any more specifics shared about the settlement.

3. Microsoft execs have been playing up in recent public appearances the pending availability of some kind of a dedicated Metro-based e-reader. This has seemed odd to a number of us Microsoft watchers, given the official Microsoft stance that Windows 8 tablets running a Kindle and/or Nook application would be just as good an e-reader as a dedicated device. Now, given today's NewCo announcement, I wouldn't be surprised to see a Windows 8-based Nook reader.

(Here's some background on this, according to one source: One of my contacts had told me a while back that Microsoft was working on an e-reader with B&N. The plan supposedly was that Microsoft would build the e-reader and B&N, the bookstore. Supposedly, my contact said, B&N dropped out, and shortly thereafter, Microsoft was working on the Courier, which could double as both a notetaking and reading device.)

Microsoft and B&N are holding a press conference this morning (8:30 am ET) and I'll update this story with more if and when there's more to say....

Update: It sounds like a Windows-powered reader may be in the works, but not necessarily Windows 8-powered.

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