Only time they stifle innovation is when competitors in an industry come together each year to cross license each others IP. This has the effect of keeping new competitors out of the industry.
When someone has spent several million dollars on a risky system that has never been done before they should be able to enjoy several years of exclusive rights to their product when the risk bears fruit.
It also discourages innovation, when companies are allowed to patent trivial or obvious methods. It has the effect of preventing engineers and inventors from being able to use standard practices.