So much for Barnes & Noble's standing up to Microsoft's "anticompetitive scheme" against Android. One year after their nasty patent spat flared up, Microsoft and B&N have buried the hatchet with a "strategic partnership" that has Microsoft dumping $300 million into a new subsidiary company. It's a smart investment for Microsoft, since allowing ambiguity to fester around Android's patent status earns it far more than the $300 million it's putting into B&N.

The terms of the deal have Microsoft settling its suit with B&N, giving the company a royalty-bearing patent license for the Nook line. Microsoft is putting a $300 million investment into "newco," an as-yet-unnamed subsidiary, in exchange for a nearly 18% equity stake in the company. B&N will own the rest of the company, which will have an "ongoing relationship" with B&N's retail stores. The company will also include the B&N college business. There will be a Nook app for Windows 8 as part of the deal, as well.

Last March, Microsoft sued Barnes & Noble, Foxconn and Inventec, claiming that they were infringing on five Microsoft patents. Rather than caving, as many other companies have done, B&N went on the offensive, describing Microsoft's strong-arm tactics (PDF) for wringing licensing fees out of companies using Android.

The case was stayed last June, (PDF) pending the outcome of an International Trade Commission (ITC) decision. That decision was expected on April 27th, and didn't look good for Microsoft.

Microsoft Saves Face, B&N Gets a Boost

So, despite the fact that the deal took many industry watchers by surprise, it shouldn't have been a total shock. Microsoft wasn't about to let a losing case go to trial that might jeopardize its Android cash cow.

By settling with B&N, Microsoft avoids an ugly court battle that might not have been decided in its favor. Like most companies that wield patents as weapons, the goal is to prevent competition and maximize royalties. Microsoft has no dog in the e-reader fight, so the partnership with B&N makes sense for Microsoft anyway.

Since Microsoft's patent license for B&N is a royalty-bearing one, it means that Microsoft may well make back its investment and wind up with a portion of the Newco to boot.

Winners and Losers

The big winner here is Microsoft, make no mistake. While the ITC decision was not a lock for B&N to win the case, it should have carried quite a bit of weight.

Barnes & Noble avoids a protracted legal battle with a company with much more legal firepower. The best case for B&N was to fend off Microsoft's suit, which still meant spending a lot of time and money when it's busy trying to compete with Amazon and Microsoft. Having the Microsoft suit cleared off the deck, with some cash to boot, is a win for B&N in the short term. Investors certainly seem to like the deal: Barnes & Noble's stock price is up by more than 60% since the news hit the wires this morning.

This is a loss for Android, though. Once again, patent FUD remains strong in the absence of actual legal decisions. Microsoft can point to the deal and claim, once again, that another company has found its patent claims compelling. It also doesn't have to deal with trial testimony that echoes its back-room patent negotiating tactics, which B&N seemed very willing to disclose.

Whether this helps B&N compete more effectively with Amazon is open to interpretation. So far, Amazon's results with college students have been weak. There's a lot of room for improvement for educaional uses of e-books.

Is it a win for users? It's hard to see how. As usual in patent cases, nothing in the announcement points to any innovation taking place, just two large corporations trying to decide how to carve out market share and avoid real competition.