The patent system in the United States was first adopted in 1790, and was designed to grant inventors a limited-time monopoly on the use of their inventions, in exchange for the public disclosure of those inventions to advance science and innovation.

But the patent system isn’t keeping up with the changing world, especially when it comes to new kinds of innovation. What worked well for protecting Thomas Edison’s ability to monetize his invention of the incandescent light bulb – giving him 20 years of revenue from the invention in exchange for opening up the details of his discovery to other inventors who could improve on the concept – isn’t working when it comes to software and business methods.

This is a common topic of discussion in the entrepreneurial community, and you’d think that software innovators might be in favor of software patents, right? No, quite the opposite.

Basic software concepts, like the best way to lay out a user interface, or a fundamental concept like tabs in a spreadsheet, are being patented, and the patent owners then sue software makers in an attempt to either (a) extract large sums of money, or (b) put them out of business.

The latest news is that Facebook has been granted a patent for the concept of “dynamically providing a news feed about a user of a social network.”

One commenter on venture capitalist Fred Wilson’s blog post said:

This is weird news. I run a small local social community and also use some kind of newsfeed system. Yet the earliest version of my newsfeed dates from 2003, way before facebook’s feed. If they wanted to, they could easily crush me with this patent as I dont have the judical knowledge and financial power to enter a legal battle with facebook. The could close me down, although everyone would know that it’s only because they have this patent, not because I copied the newsfeed from them.

What’s worse is, there are companies being founded for the sole purpose of buying up the rights to these patents, and filing piles of lawsuits against any new startups in the technology space that might possibly have a remote link to the patent. These brand new companies have no resources to fight back, so they often have to pay off the “patent troll” or just drop their idea and go out of business.

The pace of innovation and monetization in software far exceed the types of innovation that the patent system was designed to protect and nurture. The patent system can continue to be extremely valuable in these other areas, but It’s simply an outmoded and unnecessary structure for the arenas of software and business methods.

It hurts competition, hurts consumers, and hurts innovation far more than it helps.

Of course, we’ll continue to have copyright and trade secret protection. If I had invented Facebook, somebody couldn’t just copy my code and launch a clone the next day. They would have to outwork, out-innovate and out-execute me in the marketplace.

I think that’s the way it should be.

What do you think? Do patents belong in the software arena? How about hardware? Pharmaceuticals? What are the standards for deciding where they foster innovation and where they don’t? Use the comments below to share your thoughts.