This is how it should work, but unfortunately it seems that the patent examination process does not work that well: Often trivial patents or patents with prior art are granted anyway, and one then has to risk going to court to invalidate the patent, which is highly undesirable for e.g. a private person developing free software in their spare time. Hopefully, in the US this will improve with the new patent reform.

Personally I believe that we should simply abolish software patents: Innovation in the software world seems to thrive without a patent process too, and in fact the patent process seems to be a major hurdle for small players to enter an existing market here.