"Patent trolls could be the end of Silicon Valley" says Tim O'Reilly

Saying trolls are killing innovation is like saying tall people are killing basketball. Once you write the rules, people will win the game by following those rules.

If you want shorter basketball players, change the rules that give them advantages. If you want more innovation, change the rules that stifle it. Blaming people for following the rules does little but polarize the debate.

It's both.

The original vision for the patent system, as laid out in the Constitution, was "...to promote the progress of science and useful arts [thereby benefitting society as a whole], by securing for limited times to authors and inventors the exclusive right to their writings and discoveries."

The end-goal is, as you've stated, the benefit of society as effeced by innovation and discovery. An important implication in that goal is that society does not benefit, and maybe even hurts, from stagnation in the arts and sciences. The founders theorized that a society free from any patents or protections would lead to stagnation, because there would be no financial benefit to the inventors, and hence, fewer would get into the innovations game in the first place. In order for society to benefit from innovation, being an inventor needs to have some serious upside, so that more inventors keep inventing.

There's nothing in the letter or spirit of the US patent system that claims the "larger company" or the "smaller company" in your example is better for society. Indeed, the patent system is mainly concerned with the startup/inventor at its seed stage. Where the startup or inventor goes from there is left open to the dynamics of the marketplace.

Over the years, many of the checks and balances have been eroded and much of modern IP law is a one-sided scam that doesn't work in favour of the market, competition or society as a whole.

They merely gave congress the power to do this, like declaring war, but they didn't mandate it.

Patents are broken. Fundamentally and in this implementation. We could reward those who helps society, such as inventors (regardless of who builds the invention) and the engineer who creatively gets the price down to where everyone can have one, and the manager who wrangled thousands of people to make something great, all without granting a single monopoly.

Simply divide the cost of the patent office (ignore the money it collects because it's a tax on industry), and give it to the people who've made things we like/need. For more money, tax industry equivalently to the average current patent litigation burden and give that to the innovators as well. It's no less fair than what we do now, at its worst, and its upsides are tremendous.