PALO ALTO -- WHILE HE WRESTLED with the financial difficulties of his San Francisco-based software company, Vladimir Pokhilko watched from the sidelines as business associates and friends readied the lucrative relaunch of Tetris, the world's most popular video game.

Apparently pushed to the edge, Pokhilko - president of AnimaTek, a San Francisco-based software design company - brutally murdered his 39-year-old wife, Elena Fedotova, and their 12-year-old son, Peter Pokhilko, before killing himself, police said Wednesday.

A business associate said Pokhilko had been wrestling with company problems brought on, in part, by the economic upheaval in Russia, where 70 of AnimaTek's 82 employees work.

Adding to those pressures, said Henk Rogers, who helped found AnimaTek in 1988, was a push to get more financing to create software that would yield "Hollywood-type" computer effects.

"We were in the middle of raising money," said Rogers.

"It was nothing out of the ordinary. Nothing that we couldn't see past the end of."

But sometime Monday night, in the family's home on the 400 block of Ferne Avenue in southern Palo Alto, Pokhilko killed his family and then himself, police believe. Pokhilko hit Fedotova, a popular yoga instructor, and Peter, a seventh-grader, with a hammer, and repeatedly stabbed them with a hunting knife, apparently as they lay sleeping.

Then he stabbed himself once in the throat with the knife, police said.

"It's unfathomable that someone would do this to themselves and a child," said Palo Alto police spokeswoman Tami Gage.

A close family friend called police at 3:30 p.m. Tuesday, after he arrived at the family home, having failed in repeated attempts to reach the family by phone.

The pajama-clad bodies of Fedotova and Peter were found in their beds by police. There was no sign of a struggle, indicating they may have been sleeping when they were attacked.

Pokhilko's body was found in Peter's room, with the hunting knife in his hand, police said.

Along with the knife, police recovered the hammer believed to have been used in the attacks, and they found a note. Investigators would not release its contents.

"Not a suicide note"

"It is not a suicide note," Gage said. "We don't even know who wrote the note or how significant it might be."

Wednesday, the community was reeling from the horrific incident.

Flags at Jane Lathrop Stanford Middle School, where Peter was a student, flew at half-staff. And during the day, about 40 of his classmates placed a makeshift memorial of poster board in front of the family house. The poster board carried messages such as "In loving memory of Peter" and was covered with signatures of classmates and teachers.

Meanwhile, more was learned about Pokhilko, 43, whose firm, AnimaTek, emerged from a partnership formed in Moscow more than a decade ago with Rogers and Russian computer scientist Alexey Pajitnov, who invented the video game Tetris in 1985.

Pajitnov based Tetris, which entails lining up stacks of blocks as they drop to the bottom of a computer screen, on an ancient Roman puzzle called Pentamino.

Pokhilko, a Russian clinical psychologist and a longtime friend of Pajitnov's, had been experimenting with using puzzles as psychological tests when Pajitnov first showed him his invention, said Rogers.

Mass appeal of puzzle

Pokhilko immediately saw the mass appeal of the puzzle and convinced Pajitnov it would make a great computer game. But in 1986, before the game was published, Soviet authorities demanded that Pajitnov sign over all rights to the game.

Later, Pokhilko and Pajitnov teamed to create other digital diversions, including El-Fish, a virtual aquarium.

In a 1996 Examiner interview, Pajitnov said he had acquiesced to the Soviet demand to sign over the rights of Tetris because he feared reprisals.

"I would have been in prison for sure had I gone directly to Nintendo," Pajitnov said. "I would have had to be a dissident and possibly be cheated for everything anyway. So it wasn't worth it."

During the 10 years the Soviet government brokered deals with Nintendo, Atari and other video-game makers, Pajitnov lost an estimated $40million in royalties.

One of those who brokered the largest license agreement was Rogers, whose Japan-based Bullet Proof Software locked in the rights to sell Tetris to its largest market, the hand-held gaming-device industry.

"That was the biggest market for Tetris," Rogers said.

"That's what made the game huge."

Rights revert to inventor

In 1996, the Soviet restrictions expired and Tetris rights reverted to inventor Pajitnov, who, at Roger's urging, had immigrated to the United States five years earlier with Pokhilko.

Rogers had helped the pair open AnimaTek International Inc., a software development company creating computer-generated terrains and characters for the gaming industry. Pokhilko became president of the company. Rogers was the chairman and largest stockholder.

But two years ago, when the Soviet rights to Tetris expired, Rogers said, he formed the Tetris Co., which bought the rights to the game from Pajitnov, leaving Pokhilko out of the loop.

Rogers also launched Blue Planet Software, which he said was to publish the next-generation Tetris computer games, including versions that would allow players to conduct Tetris matches over the Internet.

The new version is expected to be a big hit.

"There's a lot of anticipation around (the new Tetris)," said Cindy Blair, publisher of the San Francisco-based Game Developer magazine. "It's huge. It's one of the biggest games, ever."