Without patent system, what would stop someone from just cloning the IPhone and coming out with a lower cost version which doesn't factor in all the r&d that apple put into the development of the phone?
Because it's considerably harder to do than you're making it out to be. It's not just the iPhone hardware that makes it valuable to customers, it's the support infrastructure Apple has in place, the software they write for it, the ecosystem of other products, etc. And let's be honest here - companies basically are cloning the iPhone for all intents and purposes and Apple basically clones other companies' successful products as well. They sue the crap out of each other as a cost of doing business and a bunch of lawyers buy new BMWs and lake homes and we all pay a few bucks more for our electronics. It's absurd.
Being the "first mover" is more often than not a disadvantage, and being one entails taking huge risks. ("Copycats" by Oded Shenkar is supposed to be a good book about this. Google "first mover fast follower" and "copycat innovation" to find additional relevant references. )