The company doesn’t want people to game the system but doesn’t want to wrongly penalize a domain, either.
When you see an expired domain auction for a crappy domain reaching stratospheric levels, you can be that people are bidding on it because it used to have an active website. They acquire the domain name to take advantage of the existing search engine rankings and backlinks pointing to the domain.
What does Google do about this? John Mueller, the public SEO face of Google’s search team, answered the question in a recent video.
Mueller said that Google does a decent job of figuring out if someone is trying to game the system, but it needs to be cautious. After all, domain names change ownership all of the time, and this doesn’t mean that the domain should start from zero in a search engine’s eyes.
He admitted that Google doesn’t always get it right.
It’s certainly a complicated issue for Google. I recall Vint Cerf bemoaning the practice of auctioning off domains before they expire at Domain Roundtable in 2006; it made it more difficult for Google to figure out if a domain expired and was picked up by someone else or was merely transferred to another owner.
This video is queued up to his answer: