So, I work in AAA and knew vaguely about the whole red cross thing, but I went and asked one of the CDs who used to be a project manager for more details about how we have to deal with this from the developer side.
The console platforms have a very strict set of guidelines that a game must adhere to to pass cert (Sony calls this the Technical Requirements Checklist and Microsoft calls it Technical Certification Requirements - so if you can never remember if the abbreviation is TRC or TCR, don't worry, it's right somewhere!).
The red cross thing falls under a requirement that's more or less "title does not use any trademarked content or any content protected legally by any body" (heavy paraphrase). Big publishers err on the conservative side because they'd rather avoid spending the time/money/effort defending themselves in court, even if they would surely win.
Honestly the red cross thing would probably not hold up in court, but who wants to go to court? This is probably why you see the red cross in smaller games but games with the bigger publishers are more strict about it. I believe we used white crosses on red backgrounds for health in one game, which is fine.
The other layer is that it is the responsibility of whoever owns the IP to vet for legal clearance. So if the developer owns it, it's on them, but if it's publisher-owned then it goes through there system. There's also often a branch of the legal division of publishers on the lookout for "potential cultural and/or political sensitivities" who are looking for things that may cause outrage (and thus damage the publisher name).
So the summary for the console perspective on this:
- Platform (Ms/Sony/Nintendo) makes it a technical cert requirement to not have any trademarked stuff in their games
- IP holders (could be developer or publisher) is responsible for getting their game vetted by legal
- Publishers often have divisions in legal looking for "stuff that would cause outcry"
And lastly, the point is to avoid going to court altogether, even if the thing probably wouldn't hold up in court.
Hope this helps!