They really are duds. The Milk Duds name came about because the original idea was to have a perfectly round piece. Since this was to be impossible to do at the time, the word 'dud' was used. Each piece was a dud, because it was not round.
In 1928, Milton J. Holloway took over F. Hoffman & Company of
Chicago, the original manufacturer of Milk Duds chocolate covered
caramels. The brand passed through many other hands in subsequent
years and is now owned by Hershey.