A Chinese ban on German chip giant Infineon Technologies selling gallium nitride (GaN) products in mainland China triggered a spike in domestic semiconductor stocks on Monday, as the landmark patent dispute was expected to reshape the country’s “third-generation” chip sector.

A decision by China’s Supreme People’s Court on Friday upheld a lower court’s injunction issued against the German company in May, according to a statement released by domestic rival Innoscience.

The lower court found that Infineon infringed on two core GaN patents held by Innoscience, ordering it to immediately cease all Chinese sales and imports of the infringing products and pay 10 million yuan (US$1.47 million) in damages, the statement said.

Infineon did not immediately respond to a request for comment on Monday.

The ruling triggered a rally in Chinese chip material stocks on Monday.

Innoscience’s Hong Kong-listed stock surged 16.6 per cent. Shanghai-listed compound semiconductor makers Silan Microelectronics and Sanan Optoelectronics both surged by the 10 per cent daily limit, while Star-market-listed power semiconductor manufacturer China Resources Microelectronics jumped over 13 per cent.

The dispute represented a “system-level confrontation” over dominance in the third-generation semiconductor industry, according to Zhang Guobin, founder of Chinese chip website eetrend.com.