Patents: good for innovation or stifling?

The August 20 issue of The Economist includes an article entitled "Intellectual Property: Patent Medicine" which discusses many of the problems with the American patent system, most of which were not addressed or redressed by the latest "patent reform" legislation. Here's the alarming statistic:

In recent years, however, the patent system has been stifling innovation rather than encouraging it. A study in 2008 found that American public companies’ total profits from patents (excluding pharmaceuticals) in 1999 were about $4 billion—but that the associated litigation costs were $14 billion.

At times it seems for a small innovative business that the effort and costs involved with preparing and filing patents may not be supported by the benefits that accrue. Retaining ideas as trade secrets, or protected in other ways like via SBIR data rights, may be a better means to protecting a company's intellectual property.