This is all about perspective then; you say innovation I say stagnation. Really how many *useful* features does your new DVD player have that your old one didn't? It plays DVDs, has been innovated enough to play CDs, MP3s, JPEGs, etc but you bought it to play the same shiny circle it did 10 years ago. Something becoming cheaper and gaining incremental features isn't innovation, it is stagnation.
The thing is that to me, our patent laws are perfectly reasonable. Maybe the terms could be a bit shorter, but if someone invents something they should be able to own that invention for awhile. The problem is the patent office. The inspectors are simply overworked, if you take too long (which they already do) the system is broken. If you let bad patents through (which face it, given their insurmountable task, you would fuck up a lot too) the system is broken. If you hire a million new patent inspectors the country complains you are spending too much money, so the system gets broken.
Then you ask how to change it and find it isn't fixable. If you do away with patents then many people see no reason to innovate. If you make the practice harder or more expensive you alienate the little guy. We can put a limit on how many patents an entity can file but besides being unenforceable it also screws the big guy, and the big guy doesn't deserve to be screwed either.
I agree we live in an amazing world, I am typing this reply on the computer that resides in my pocket. It will, momentarily beam this message through the air, then fiber, then copper to a few hard drives somewhere so that everyone in the world can read it. This phone also connects to satellites in freaking space in order to find me when I get lost. Oh yeah, and the internet gives me Wikipedia, IMDB, various dictionaries, and all the naked women I can shake a stick at; you know, pretty much the whole of human knowledge (and perversions) sitting in my pocket. I cannot argue innovation still happens, but of this $600 computer (in my pocket, seriously, how cool is that?) how much pays for ridiculous patents on obvious ideas because sometimes buying a license is cheaper than lawyers and bad press? Of my $100 a month cell phone bill how much goes to the guy that determined if we take a receiver and put it up higher using a metal, plastic, wooden, or other solid substrate for the purposes of better reception while also, in it's design, using triangular geometry in order to maximize strength? We need to give credit, somehow, to the guy that invented the touchscreen, not the guy who's idea it was that if I spread my fingers apart I am signaling to make something bigger, and pulling them closer means make something smaller.