Barnes & Noble and Microsoft today announced a strategic partnership whereby the software giant will invest $300 million in the retailer's Nook business for a 17.6 percent stake.
The deal also means the two firms have settled their patent dispute.
The arrangement means that Barnes & Noble's digital and college businesses - basically, the Nook software - will become a new subsidiary in which Barnes & Noble holds an 82.4 percent stake and Microsoft owns 17.6 percent.
One of the first orders of business will be a Nook app for Windows 8 tablets, the companies said. Microsoft is set to release Windows 8 later this year, and tablet makers are looking to the revamped OS to help battle the iPad in the tablet market.
The new subsidiary has yet to be named; executives are currently referring to it as Newco.
In a conference call, William Lynch, CEO of Barnes & Noble, described Microsoft as the "ideal partner" for Barnes & Noble. "Few companies own more screens worldwide than Microsoft."
"Microsoft's investment in Newco, and our exciting collaboration to bring world-class digital reading technologies and content to the Windows platform and its hundreds of millions of users, will allow us to significantly expand the business," Lynch said.
"Our complementary assets will accelerate e-reading innovation across a broad range of Windows devices, enabling people to not just read stories, but to be part of them. We're at the cusp of a revolution in reading," said Andy Lees, president at Microsoft.
The news comes several months after Barnes & Noble announced that it was contemplating a spinoff of its Nook business.
The deal, meanwhile, puts to rest the patent dispute between the two companies. In March 2011, Redmond filed suit against Barnes & Noble for patent infringement regarding its Android-based Nook e-readers. Microsoft holds patents relating to navigation and how websites display content; technology used on the Android platform. Barnes & Noble disputed the case, but in January, an International Trade Commission (ITC) judge threw out Barnes & Noble's antitrust claims against Microsoft.
Barnes & Noble and Newco will now have a license for Microsoft's patents for its Nook ereader and tablet products.
Last week, Barnes & Noble unveiled the first ebook reader with edge lighting - the Nook Simple Touch With GlowLight. For more, see PCMag's full review and the slideshow below.
Lynch said today that Barnes & Noble is currently sold out of the new Glowlight ereaders, but when asked about the future of the Nook hardware, Lynch was coy.
"Our focus is going to be [creating] compelling experiences on the Windows platform, and we've got what we think is an exciting roadmap," Lynch said. "We're not getting into specifics today."
He did say, however, that Barnes & Noble has no immediate plans to sell Microsoft products in its stores at this point.
When asked if the Nook would run Windows 8, meanwhile, Lees also declined to provide specific details, but said that "we think that in this set of scenarios we're going to have a larger role to play than just being the platform provider."
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