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January 5, 2012 7:16 PM

Amid Patent Fight with Microsoft, Barnes & Noble Explores Nook Unit Spin-Off

Posted by Tom Huddleston Jr.

Barnes & Noble said Thursday it is exploring a possible spin-off of the unit that makes its Nook e-reader, which is falling behind competitors such as Amazon's Kindle line even as sales rose over the holiday season. The announcement came at the same time the company lowered its 2012 sales forecast for the Nook line from $1.8 billion to $1.5 billion.

A Barnes & Noble spokeswoman did not respond to a request for information on which firm is advising on a possible spin-off.

Last May, The Am Law Daily reported that Cravath, Swaine & Moore was advising the company on a proposed sale to Liberty Media Corporation under which Liberty was offering $17 a share in exchange for a 70 percent stake in the company in a deal that valued the bookseller at roughly $1 billion; Barnes & Noble founding chairman Leonard Riggio would have retained a nearly 30 percent equity stake under the transaction's terms.

O'Melveny & Myers advised Riggio on the proposed takeover, while Baker Botts represented Liberty, according to our prior reporting.

Within several months, Liberty's concerns over the stock market's volatility had helped torpedo that deal, and the company opted instead to purchase a minority stake in the bookseller for $204 million. Cravath and Baker Botts also advised on that transaction, according to filings with the Securities and Exchange Commission. Citing the entertainment conglomerate's prior interest in Barnes & Noble, TheStreet.com reported Thursday that Liberty could be the most likely buyer for the Nook unit.

A Cravath spokeswoman did not return a request for comment Thursday. An O'Melveny spokeswoman declined to comment.

The news of a potential spin-off comes roughly a month before Barnes & Noble is set to defend itself at the International Trade Commission against accusations that the Nook infringes five Microsoft Corporation patents.

Am Law Daily sibling publication The Am Law Litigation Daily reported in November that the bookseller has enlisted a stable of litigators to counter Microsoft, which is asking the ITC for an exclusionary order banning the Nook from being imported into the United States. (Microsoft, which filed its ITC complaint against Barnes & Noble last March, has sued Barnes & Noble over the same patents in federal district court in Seattle. That case is stayed pending the outcome of the ITC action.)

For the ITC proceedings, the Lit Daily reported, Barnes & Noble has assembled a legal team that includes Boies, Schiller & Flexner founding partner David Boies, as well as lawyers from Quinn Emanuel Urquhart & Sullivan; Cravath; and, Kenyon & Kenyon. Microsoft is represented at the ITC by Sidley Austin, Orrick Herrington & Sutcliffe, and Woodcock Washburn.

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