If the patents ("innovation") were so valuable, Nortel wouldn't have gone out of business.
Successful companies can (and have been) successful without patents (or without enforcing patents). Nortel was unable to be successful despite having lots of patents.
Given those facts, the case for patents as a way to "reward" innovation is thin.
There's only a weak correlation between success and patents in that successful companies are forced to pile up patent portfolios, including paying $125k per patent as in this case, not because they care about any of the technology, but because they are afraid of being sued for even greater amounts of money by some other patently rich company.
Not disputed. Nortel was mismanaged into oblivion. That does not show that the fundamental incentive in the patent system is broken.
"If the patents ("innovation") were so valuable, Nortel wouldn't have gone out of business."
That's a total non sequitur. Any business can be driven off a cliff. The patents are that valuable and that's been clearly shown at auction.
"Given those facts, the case for patents as a way to "reward" innovation is thin."
Your "facts" are better termed anecdotes and only disprove the straw men that "you can't be successful without patents" and "patents guarantee success" neither of which is being claimed by anyone.
I am no supporter of software patents. But I don't think this follows directly. Producing innovations is different from having the business acumen to make money out of it.
So the patents don't represent innovation to the bidders, the patents represent a legal defense fund.
The innovation represented by these patents just made $4.5 billion. That's the definition of rewarding innovation.
"Instead of spending billions on new R&D"
If it was legal for every KIRF to come in and use every other companies innovations there would be much less incentive to invest in R&D to begin with.