A couple of important points:
> They are still making innovative products, but they distorted their market power and millions of poor Indian citizen's lives were immeasurably worse off for it.
No, most innovation in new drugs happen in countries with strong patent protection. There is a lot of development outsourced to India, but almost nothing innovative on the development side. That isn't to say India's policy doesn't make sense for them, but they are essentially just stealing from the US and other countries. Imagine if that were true worldwide 20 years ago. Health insurance would be a lot cheaper, yes, but a large percentage of drugs developed in the last 20 years would not exist. It's a trade off that maximizes a longer term return.
> infringement
Yeah, I was just pointing out that a lot of the patent system is designed to protect people who are being infringed by larger entities. Just because it is abused by others doesn't mean it doesn't serve a purpose.
> patents distort markets
Of course they do, but it is not necessarily net negative.
> demonstrated that patents aren't orthogonal
Yes, that is a very long discussion. However, it should be fairly obvious that the software developed by industry and the software available in the open source world is not the same. I would go so far as to say the open source world is an order of magnitude or two smaller than software from for-profit entities. There are different incentives for releasing open source software than starting a business, and patents are designed to make the latter more attractive.
> Patents attempt to produce a monopoly on an idea and prevent anyone else from capitalising on it for decades.
No, patents provide a temporary, licensable monopoly on an implementation. You don't patent the idea of holding paper together, you patent the concrete implementation and manufacture of a paper clip.
More importantly, they require disclosure of that implementation to the rest of the world. I think this gets lost when people talk about removing the patent system. The primary purpose wasn't to encourage invention, but to make sure people disclose it.
Your final point about patent infringement... I dunno what to say. You've just explained why patents are inherently problematic, the patent system can't handle it internally because then they would be handling financial lawsuits in a non-transparent matter, and the rule of law would be in essence damaged. By making the patent office the approvers AND handle objections - that's not going to ever work. They'll almost always agree with their own decision. After all, they made the wrong decision in the first place!
Patents occur within the legal framework. If the patent system is hard to improve, then those other issues you mention are, to my kind, not immeasurably greater than the utterly broken patent system we gave today.
I don't feel the reality is as subtle as you talk about. I think it's actually as clear as day that patents distort markets, and I don't feel you've demonstrated that patents aren't orthogonal to open source software, except where it comes to financial incentives.
Open Source financial incentives are to build the best software that the market wants, and sell the code with backing support contracts and early access to new features that are shown in the open, with guarantees that the best people are working on the software; yet still the same time allowing maximum competition and innovation in the market whilst each company or organization strives to produce the most attractive offering.
Patents attempt to produce a monopoly on an idea and prevent anyone else from capitalising on it for decades. It assumes that nobody will ever want to form an invention unless they have exclusive control over that idea. That's self-contradictory - protecting a patent means that someone else WILL have that idea eventually and want to build a product around it, or even incorporate it into their product. They won't be able to, except at great cost. This clearly and IS stifling innovation. The rise of patent trolls and defensive patents are just two examples of how utterly and fundamentally flawed the entire concept of patents are.