On the other hand, the Patent system works well when viewed in its historical context. They have been a net benefit for innovation.
Actually, one of the most comprehensive studies on that topic (Fritz Machlup, An Economic Review of the Patent System) concluded more or less the opposite:
If one does not know whether a system "as a whole" (in contrast to certain features of it) is good or bad, the safest "policy conclusion" is to "muddle through" - either with it, if one has long lived with it, or without it, if one has lived without it. If we did not have a patent system, it would be irresponsible, on the basis of our present knowledge of its economic consequences, to recommend instituting one. But since we have had a patent system for a long time, it would be irresponsible, on the basis of our present knowledge, to recommend abolishing it. This last statement refers to a country such as the United States of America - not to a small country and not to a predominantly nonindustrial country, where a different weight of argument might well suggest another conclusion.
Similarly, the FTC Innovation report from 2003 was also far from unequivocally positive about patents, especially in the hardware/software fields. Or Jim Bessen's research, as presented (twice) at an FFII conference in 2004.
For example, there are many fewer patents lawsuits regarding Smart Phones than there were in the time the original telephone was invented.
That does not exemplify how patents have supposedly been a net benefit for innovation. Additionally, you are wrongly paraphrasing the article you refer to below. It only says that nowadays, per filed patent there are fewer lawsuits than there were in the days of the fixed telephone. From that it concludes that there is no problem with the volume of patent lawsuits.
I would argue that the reason for this is that patents are used in a very different way today compared to how they were used back then (there were much less large companies back then amassing patent war chests just for defensive purposes). Arguably, the standards for patentability were also higher back then, which means that actually going to court rather than only looking for the players you can convince to settle out of course was a much less risky business.
While I appreciate that shooting the messenger by itself is not a very strong argument, that's an opinion piece by "the vice president and head of strategic acquisitions at Intellectual Ventures". That's patent troll central. Suing companies, or threatening to sue them, based on all kinds of patents is their bread and butter.
Moving on to substance, he's most definitely wrong when he claims that "Every major technological and industrial breakthrough in U.S. history [..] has been accompanied by exactly the same surge in patenting, patent trading, and patent litigation that we see today in the smartphone business". Do you remember the massive patent wars from the eighties and nineties that came with the personal computer revolution? No? Me neither. There were a few lawsuits (e.g. Stac vs Microsoft), but there most definitely was no surge like what we see today.
What we need is general legal reform so that disputes can be decided simply and inexpensively without Lawyers getting all the goodies.
There is absolutely no indication that we need patents and the related dispute settlement overhead at all in the ICT industry. My favourite quote is still the one from Robert Barr before the FTC in 2003, as Vice President and Worldwide Patent Counsel of CISCO:
My observation is that patents have not been a positive force in stimulating innovation at Cisco. Competition has been the motivator; bringing new products to market in a timely manner is critical. Everything we have done to create new products would have been done even if we could not obtain patents on the innovations and inventions contained in these products. I know this because no one has ever asked me ‘can we patent this?’ before deciding whether to invest time and resources into product development.