Barnes & Noble’s  new digital subsidiary that may not have a name, but it does have a $300 million investment from Microsoft. The two companies today announced a strategic partnership gives Microsoft a 17.6 percent equity stake in the venture, valuing it at $1.7 billion.

Shares of Barnes & Noble soared on the news, to a three-year-high opening price of $26. As the Los Angeles Times reported, shares of Barnes & Noble had jumped 76 percent to $24.09 in morning trading, while Microsoft’s stock rose 2 cents to $32. You can check the latest Barnes & Noble stock price by clicking here [BKS].

In a definitely related development, Barnes & Noble and Microsoft have settled their patent litigation. Barnes & Noble and Newco will have a royalty-bearing license under Microsoft’s patents for its Nook eReader and Tablet products from now on.

Newco, as the partners are temporarily referring to the entity, will have an ongoing relationship with Barnes & Noble’s retail operations, which makes sense since the bookseller will own 82.4 percent of it.

The first visible results of the deal will be a Nook application for Windows 8, which will expand the potential customer base for Barnes & Noble’s digital bookstore by many millions in the U.S. and internationally.

“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,” said Andy Lees, president at Microsoft. “We’re on the cusp of a revolution in reading.”

William Lynch, CEO of Barnes & Noble (pictured), said the deal will enable the company to “significantly” expand the business. “The formation of Newco and our relationship with Microsoft are important parts of our strategy to capitalize on the rapid growth of the Nook business, and to solidify our position as a leader in the exploding market for digital content in the consumer and education segments,” he said.

Related links:

Barnes & Noble and Microsoft – joint press release

Barnes & Noble – corporate site

Wall Street Journal – Microsoft to Invest in Barnes & Noble’s Nook

Los Angeles Times – Microsoft finds a nook of its own in Barnes & Noble

The Street – Microsoft Nook Deal: Winners & Losers