James A. Donald had a great rant to the Anti-Fraud mailing list about how patents just don’t work, at least for their intended purpose of furthering public knowledge.
The theoretical justification for patents has seldom worked in practice. Most patents are flagrantly bogus, always have been. Of the few legitimate patents, the vast majority merely obstruct the development and application of the technology, without in fact making money for the inventor. The normal outcome of patenting a genuine innovation is that people construct second rate workarounds, as Microsoft just did. The destructive effect of patents is merely most visible in those fields that are advancing most rapidly - cryptography being such a field.
These are the fatal flaws of patents–that they are often used these days to stifle competition or to patent ludicrous things like 1-click shopping or automatically launching active content in a webpage. The whole system needs to be revamped.