On 16 December last year Microsoft's legal department settled the company's longest and most expensive antitrust legal battle. In a major concession to European regulators, the software giant agreed to open its Windows operating system to rival Web browsers.

Microsoft general counsel Brad Smith and his legal team spent months last year hammering out the details of the 61-page settlement with the European Commission (EC). By autumn, Microsoft's legal department had held 24 videoconferences and 34 conference calls with EC lawyers. "We wanted to be seen as a company that would work with regulators," said deputy general counsel David Heiner, who heads the antitrust group and led much of the negotiations.

Some have called the settlement one of Smith's crowning achievements. He and his legal team ended more than a decade of close scrutiny by European regulators. The software colossus can keep doing business across the Atlantic, and the stage is now set for better relations with Brussels. "There could have been an endless succession of slug-it-out battles to the death, and instead Microsoft elected to make some perhaps unwelcome but nonetheless significant concessions," said Ian Forrester, a partner at White & Case who represented Microsoft in Brussels. The case, he said, is "a really extraordinary piece of legal history."

The settlement was also symbolic for the company's legal team, which has set out to prove that it can resolve disputes amicably, despite Microsoft's reputation for aggressively fighting legal disputes to their bitter, final end. And much of that effort has focused on building relationships and listening to what the other side wants and fears. "We have tried to make that a defined part of how we train people to negotiate – in any context," Smith said. "That is not always successful, but has been widely successful for us."

Since Smith took the helm of Microsoft's in-house legal department in 2002, he's led a campaign to re-cast his company's pugnacious image and come to terms with both regulators and Redmond's fiercest competitors. Last year, for example, along with resolving the Brussels imbroglio, the department helped put together a friendly partnership deal with Yahoo! after months of acrimonious takeover discussions. The EC agreement was the culmination of Smith's diplomatic offensive.

That's not to imply that Microsoft has gone all touchy-feely. It remains a formidable legal opponent, especially when it comes to protecting the company's most valuable asset – its intellectual property. Last year the legal department won two precedent-setting patent defence victories on appeal. Meanwhile, it stopped several consumer lawsuits from getting class certification.

Those litigation successes are among the many reasons Corporate Counsel recently awarded Microsoft's lawyers the accolade of Best Legal Department of 2010.

Particularly noteworthy is that the department achieved all these successes after having its budget and staff cut for the first time, thanks to the economic meltdown. So it is no surprise that efficiency has become paramount for the department, which is made up of 459 lawyers based in 44 countries. Lawyers have been doing everything from slashing the number of contracts in use to redesigning the entire patent application process.

But economic pressures have not stopped Microsoft's legal department from trying to make the world a better place as well. They are helping laid-off workers get free computer training and representing immigrant children in court, and even some of the critical day-to-day work that lawyers do at Microsoft has a social dimension. Lawyers in the digital crimes unit not only track down spammers and criminals who sell pirated Microsoft products online, they're working with US Government investigators here and abroad to catch child pornographers online.

And improving diversity in the legal profession is more than an empty slogan at Microsoft's sprawling campus in Redmond, Washington. Smith believes that Microsoft's lawyers should be just as diverse as its customers and its 95,000 employees, who come from 150 countries and work in 105. To help make that happen, he's attached real cash incentives to improvements in diversity – for both outside counsel and senior in-house lawyers. "Brad has approached this like any other business issue," said Mary Snapp, deputy general counsel. "We get better legal support. We're better able to connect with our consumers, and better able to connect with jurors. It's what consumers want, and the company has to connect with consumers."

Corporate Counsel is a US sister title of Legal Week.