Joseph Allen recently published an excellent article on the effect of patents on American innovation. Below is an excerpt from the article. You can read the article in its entirety here.
"Thus, the patent system is not a tool for entrenched interests to stifle competition as Professors Boldrin and Levine would have us believe. Patents allow independent inventors and small companies to compete against better funded rivals, who would otherwise simply take away their inventions.
The next time your flight lands safely, you might say a silent thank you to the Wright brothers. They never graduated from high school, yet showed the world how to travel up into the air and come back down again. Our system allowed two mechanics from Dayton, Ohio– who paid for their research out of sales from their bicycle shop– to beat an elite, government funded competitor. Modern equivalents of the Wright brothers still bet everything they own on their patented inventions, despite knowing the odds are stacked against them. The patent system may look a lot more valuable to these entrepreneurs fighting for survival in the marketplace than it does to someone gazing down from the Ivory Tower."