"How do software patents encourage innovation again, in actual practice?"
The question can be asked far broader:
"How do patents encourage innovation again, in actual practice?"
And the answer is: The don't. There were some effort to prove this statistically, but all investigations turned up this is NOT SIGNIFICANT. So there is absolutely no proof that patents encourage innovation. neither is there that (also in the broad field, not only software-patents) that they stiffle innovation.
However, another investigation turned up the fact that the only field where revenues from patents are higher than the legal costs associated with them are pharmaceuticals. So even if patents do not stiffle innovation, they are everywere but in the pharmaceutic industry JUST LEGAL OVERHEAD.
Patents can be used for corporate warfare, of course, but does the state really need to maintain a patent-system whose only benefit in most industries is to pay rents for lawyers and to serve to provide ammunition for corporate warfare?